CORE STRENGTH The agony and the ecstasy of changing core banking systems
STUMBLING TOWARDS THE FINISH LINE Will the Single Euro Payments Area ever get its act together?
www.fsteurope.com • Q4 2010
e l i m s a h t i w e c i v r e S
How a new breed of bank is bringing back old fashion customer service – using next generation technology
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FROM THE EDITOR 5
A maverick act Is going back to basics the key to survival for high street banks?
amuel Maverick, so legend has it, was a 19th century Texas rancher who liked to let his cattle roam free. His stock, left unidentiﬁed and free to wander, eventually earned him the nickname ‘maverick’. By the end of the century, the term had come to mean someone who does things his own way. Many of the CEOs, CIOs and captains of industry who feature in this issue of FST have probably never heard of this story. But it’s fair to say that the spirit of old man Maverick has been a frequent visitor to their lives. You don’t, after all, get to the top of your game without pushing boundaries, without leaping and then looking for the safety net. Now, more than ever, the world needs innovative, creative people whose raison d’être is to push the boundaries: the global economy is melting faster than Arctic ice, each day brings fresh news of layoffs, bailouts and closures and headline writers have run out of creative ways to announce that economic Armageddon is nigh. It’s no surprise that consumer conﬁdence, particularly in the ﬁnancial services sector which many deem responsible for this whole mess, is at an all time low. According to a Which? report, fewer than one in three people in the UK trust their bank. A further three million were so dissatisﬁed with the service they received from their banks last year that they felt compelled to complain to the UK’s Financial Ombudsman Service.
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It’s clear that the battle to win back the hearts and minds of the banking public is going to require more than just slick marketing/advertising campaigns and empty promises. For a new breed of UK high street banks, that means going back to basics – to old school values such as customer service, convenience and customer engagement – in the hope that they can stem the growing tide of consumer distrust. These banks are, according to one analyst, pinning their expectations on “generating real consumer engagement to drive business growth”. We outline their battle plan on page 32. It remains to be seen if looking backwards can help to propel these new banks forward. But they certainly deserve kudos for trying something different in their quest to challenge the dominance of the established institutions. Mr Maverick would no doubt be proud…
“Changing core banking systems is like doing open-heart surgery whilst the patient is running a marathon” – Misys’s Peter Scott (p74)
“The introduction of the euro as the single currency of the Euro area will only be completed when SEPA has become a reality” – European Commission/ European Central Bank (p128)
Sharon Stephenson Editor
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The new kids on the block A wave of new banks has started hitting the UK’s high street. With a focus on customer care, will these new players cause an evolution in banking
Banking on reputation The Royal Bank of Scotland’s Stephen Hester puts the company’s results into perspective
Facing down the security attack
In the battle with security fraudsters, banks increasingly have to pull rabbits out of hats
52 Stumbling towards the ﬁnish line It’s been a long time coming, but recent developments mean a Single Euro Payments Area (SEPA) could finally become a reality. FST backgrounds the long and winding road to SEPA
128 22/11/2010 14:36
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44 Driving change Standard Life’s Christian Torkington reveals how business change is ensuring better integration and implementation of IT solutions to improve innovation capability
48 The big ﬁx Sandy Hawke on how the BigFix Unified Management Platform has radically changed the way IT staff approach their daily operational tasks
58 You’ve got spam Email remains the primary security concern for CISOs, despite the proliferation of social networking, says Michael Osterman
62 An alternative strategy Gibu Mathew explains why a monitoring strategy that combines proactive monitoring across physical, virtual and cloud infrastructure is an ideal application performance management approach
64 Risky business José Manuel González-Páramo from the European Central Bank shares the lessons that can be learned from the financial crisis
Ask the Expert 50 56 60 76
Stephen Hoare, Kensington Simon Taylor, Commvault Joseph Belsanti, WinMagic Inc Sanjay Agrawal, Cimcon
Executive Interview 88 98 104 112
Rod Jackson, aap3 Scott Wickware, Nuance David Gladding, ACT Conferencing David Parcell, Verint Systems
68 The ‘social network’ for investment banks? Single dealer platforms are the latest ‘big thing’ happening in capital markets. Graeme Harker tackles your questions on this exciting new area
70 The heart of the bank Core banking has a critical place in financial services as the heart of the bank. IDC’s Rachel Hunt outlines the role of core banking in relation to customer service
72 Growing in new markets Promosoft’s Luís Sant’Ana Pereira looks at banking solutions that enable fast implementation and stabilisation, adequate functional coverage, proven scalability and effective return on investment
74 Core strength Banks need to get on the core banking highway – or be left behind, say experts
78 The right ingredients Annelie Schnaar-Campbell gives us her recipe for success when it comes to risk management
Stephen Hoare, Kensington
82 The predictive side of analytics IDC’s David Potterton looks at how business intelligence is developing in the financial services sector and identifies the key areas of growth
84 Know your enemy Barclays’ Mark Logsdon is on the frontline in the bank’s fight against internal and external threats to its all-important data
90 Can the private cloud be used for real-time analytics? Adi Paz from GigaSpaces looks at the challenges and solutions of achieving cloud benefits for complex business applications
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92 Has hype hurt the cloud? It’s a hot topic, an industry buzzword and a cause for constant consternation and confusion but has hype hurt the cloud, asks FST
100 Innovative thinking Sergei Mednov, Head of Information Technology at Russia’s Alfa-Bank, is responsible for the development of IT strategy. He talks exclusively to FST about the role of innovation and where the sector is heading
106 Automation by 2015? Jon Alvar Øyasæter looks at how automation could help the capital markets sector deal with the challenges ahead
Going mainstream 108
Howard Wilcox reveals how and why mobile banking services are set to boom over the next five years
Managing consumer 114 behaviour
138 36 Hours in…Rome 140 Agenda 142 Objects of Desire
143 Books 144 Photofinish
Why and how to manage customer relationships in the retail banking sector
118 Changing online expectations Moxie Software’s Jean-Benoit Sorge reveals how social media is impacting on customer service expectations
120 Loan ranger Peer-to-peer lending website Zopa provides a platform to bring lenders and borrowers together, bypassing the banks. CEO Giles Andrews reveals the secrets behind its success
124 Death, taxes and budgets…they’ll get you every time Steve Horniak reveals the importance of using performance management tools to prepare budgets
126 The importance of getting it right Paypal Inc’s Scott Thomson discusses the challenge of moving money electronically around the world
132 A new path Angel Gurría, Secretary General at the Organisation for Economic Cooperation and Development, reveals that the economic crisis will have a lasting effect on the Spanish economy
The FST Europe Summit 17th - 19th May 2011 The Nassauer Hof, Wiesbaden, Germany The FST Summit is a three-day critical information gathering of the most influential and important executives from the financial industry. The FST Summit is an opportunity to debate, benchmark and learn from other industry leaders.
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G20 at odds over global recovery pact
hey came, they saw, they failed to agree rules designed to safeguard the global economic recovery, defuse currency tensions and prevent a reenactment of the ﬁnancial crisis. Gathering on a group of three islands speciﬁcally built for the Group of 20 (G20) Summit near Seoul, South Korea, leaders of the world’s most powerful nations spent two days engaged in often heated discussion about how to iron out the growing rifts between export-rich countries and debt-laden consumer nations, particularly concerning the thorny subjects of protectionism and gyrations in foreign exchange rates. World Bank President Robert Zoellick said the largest economies “need pro-growth policies, structural reforms, open trade and an anti-protectionist agenda”. He warned that a return to growth in most developed countries was fragile and said a slowdown next year could not only raise poverty levels in
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The largest economies need pro-growth policies, structural reform, open trade and an anti-protectionist agenda
developing nations but also leave countries such as Ireland and Portugal to suffer deep cuts in wealth and social unrest. He urged leaders at the summit to end their bickering and agree plans to maintain growth. However, his calls for progress towards an international package of pro-growth economic and trade policies fell largely on deaf ears, as critics proclaimed the whole exercise a “papering over the cracks of a problem that could jeopardise recovery from the ﬁnancial crisis”. The summit set ‘indicative guidelines’ to measure imbalances between their multi-speed economies but left the details to be discussed in the ﬁrst half of 2011. Leaders vowed to move towards market-determined exchange rates and shun competitive devaluations. Verbal jousting between the US and China dominated proceedings with Washington arguing progress towards a more balanced economy was undermined by China’s policy of devaluing its currency. China, it
THE BRIEF 15
turns out, has stockpiled its trade surpluses while the US has been left with record trade deﬁcits. For its part, China retorted that moves by the Federal Reserve to print money were also distorting the picture. European leaders broke away for their own mini gathering in the middle of the summit to discuss a deepening credit crisis in Ireland, a stark reminder that the consequences of the worst ﬁnancial crisis since the Great Depression still pose a serious threat to global stability. The G20 has fragmented since a synchronised global recession gave way to a multi-speed recovery. Slow-growing advanced economies have kept interest rates at record lows to try to kick-start growth, while big emerging markets have come roaring back so fast that many are worried about overheating. “G20 credibility does depend on showing results and we cannot get out of this with beggar-thy-neighbor policies,” said Canadian Prime Minister, Stephen Harper. “We need instead to continue to coordinate our actions going forward. The recovery is fragile…”
News in pictures
Former US President George W. Bush signs a copy of his memoir, Decision Points, which chronicles his family life and eight years in the White House
Fast facts about the G20 The G20 is a group that brings together advanced economies and emerging markets with the goal of promoting global economic stability. Members include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, United States, European Union and European Commission. Representatives of the World Bank, International Monetary Fund, Financial Stability Board and Organization for Economic Co-operation and Development are also included. Other strategic countries are often invited to sit as observers. The G20 nations account for around 67 percent of the world’s population and 46percent of its land mass, not including Antarctica. Leaders met for the ﬁrst time in November 2008 in Washington as the global ﬁnancial crisis spiralled out of control. The next meeting is scheduled for early 2011 in France.
More of the Lehman Brothers Holdings Inc corporate art collection goes under the hammer in the US. Lehman Brothers fi led for bankruptcy in September 2008, the largest bankruptcy in US history
Actor and pilot John Travolta poses with Qantas employees in period fight attendant uniforms at Qantas’ 90th birthday celebrations at the Sydney International Airport
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INTERNATIONAL NEWS Taking control South Korea has raised the prospect of introducing more capital controls as it wrestles with surging investment ﬂows. The measures would bring Asia’s fourthbiggest economy in line with defensive policies adopted in Brazil, Thailand and Indonesia. While the Central Bank didn’t specify what action Seoul was considering, suggestions from ofﬁcials included a ‘Tobin’ tax on foreign exchange transactions, a tax on capital ﬂows, further limits on derivative positions and, most controversially, the reintroduction of a 14 percent withholding tax on foreign bondholders’ earnings. Ofﬁcials say the need for capital controls has been ampliﬁed by talk of another round of quantitative easing in the US. They argue that ultra-low interest rates are fanning a trade whereby traders take advantage of different rates.
Foreclosure activity up Summer wasn’t kind to many US citizens, with the foreclosure crisis intensifying across metropolitan areas such as Chicago and Seattle – cities outside of the states that have shouldered the worst of the housing downturn – seeing a sharp increase in foreclosure warnings. California, Nevada, Florida and Arizona remain the nation’s foreclosure hotbeds, accounting for 19 of the top 20 metropolitan areas with the highest foreclosure rates between July and September, according to foreclosure listing ﬁrm RealtyTrac Inc. Those states saw housing values surge during the housing boom years but when the boom ended, values collapsed and foreclosures soared. But the latest data shows many of the metro areas in those states saw a decline in the number of households receiving foreclosure-related ﬁlings, while many cities in other states saw a spike in foreclosure activity. The trend is the latest sign that the nation’s foreclosure crisis is worsening as homeowners facing high unemployment, slow job growth and uncertainty about home prices continue to fall behind on their mortgage payments.
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Help for social-networking start-ups A partnership backed by Facebook, Amazon, Comcast and other major technology ﬁrms, has established a US$250 million fund to invest in start-ups that hope to capitalise on the growing reach of social networking. The ‘S Fund’ will be led by powerhouse Silicon Valley venture capital ﬁrm Kleiner Perkins Cauﬁeld & Byers, an early investor in internet companies such as Amazon, AOL and Google. The fund’s backers are betting that the success of Facebook, which has more than 500 million members worldwide, is only the start of the next wave of “incredible and disruptive” innovation. The fund’s ﬁrst US$5 million investment went to CafeBots Inc, a Palo Alto start-up that is working on a “friend relationship management” platform to help consumers make better use of their social network.
Slow growth South Africa’s economy may expand slightly faster this year than was forecast in February, but mid-term growth rates look set to fall short of government aspirations, according to Finance Minister Pravin Gordhan. Gordhan also said recent above-inﬂation wage hikes would weigh on government borrowing levels and interest costs rises. In its 2010 budget tabled in February, the Treasury forecast growth of 2.3 percent this year after the economy contracted 1.8 percent in 2009 in what was South Africa’s ﬁrst recession in nearly two decades. Gordhan has previously said that domestic growth needs to reach seven percent a year for the next 20 years to cut into an alarmingly high ofﬁcial unemployment rate of about 25 percent.
INTERNATIONAL NEWS 17
Recalling Hondas The US division of Honda has announced a recall of nearly half a million vehicles with brake problems, just days after Toyota announced a similar recall. The Japanese automaker said it was recalling 471,820 Odysseys and Acura RLs, made from 2005 to 2007, due to concerns of possible degradation to the brake systems caused by using non-Honda speciﬁc brake ﬂuid. Honda said its own brake ﬂuid contains polymers that act as lubricants, whereas the use of nonHonda brake ﬂuid could cause a rubber seal in the brake master cylinder to dry out, possibly resulting in a ﬂuid leak. The recall comes hot on the heels of Toyota Motor Corp’s US recall of 740,000 of its vehicles, also with potentially unsafe brakes.
Asia the way forward The ANZ, one of Australasia’s largest banks, is looking to Asia to drive continued growth, forecasting that the region will account for a third of the bank’s proﬁts within about seven years and that acquisitions will help achieve that target. ANZ is in late-stage talks to buy a 51 percent stake in Korea Exchange Bank from Lone Star, the US private equity fund. ANZ, Australia’s thirdlargest bank, with a market capitalisation of just under AUS$63bn, recently reported a better than expected 53 per cent rise in annual net proﬁt to AUS$4.5bn. Asia is currently forecast to account for a ﬁfth of ANZ’s proﬁts by 2012, up from 14 percent in the year ended September.
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Borrowers struggling The results of a new survey suggest that mortgage borrowers in Australia are scrapping their holiday plans in order to concentrate on paying off their home loans. According to the results of the latest Bankwest/ Mortgage and Finance Association of Australia Home Finance Index, more than half of those polled were sacriﬁcing a number of everyday necessities in order to absorb the cost of higher interest rates. The survey polled over 1000 property owners across the country and found that over half were eating out less, whilst just under half were cutting costs at home and taking packed lunches to work. forty-two percent said they were scrapping holiday plans or considering cheaper holiday options.
Sweet spot Having put a 58 percent stake in AIA Group up for sale, American International Group was met with nearly US$130 billion in orders. The deal so far has raised nearly US$18 billion. If over-allotment options are exercised, the AIA listing could be the third largest ever globally. The huge demand comes despite AIA losing some of its lustre under the investor microscope. Prudential, during its failed bid for the company earlier this year, noted AIA’s product mix and productivity aren’t what they could be. AIA’s vaunted advantages – such as wholly-owned operation in mainland China – have proved less exciting on close analysis, since it counts on highly penetrated life insurance markets like Hong Kong for most its business. Still, the company offers global investors a one-stop exposure to the insurance sector across 15 Asian countries. As important, the listing comes as the region’s IPO markets are running at full throttle, aided by surging inﬂows to emerging-market stock funds.
he Chief Executive Ofﬁcer of Santander UK, Antonio HortaOsorio, is set to take over as CEO of its larger rival Lloyds Banking Group early next year. It’s already gone down well with Lloyds shares rising almost four percent on the announcement alone. As head of its nearest rival, HortaOsorio is perfectly qualiﬁed for the new role. Santander has 14 percent of the UK mortgage market and 10 percent of deposits. Having bought Alliance & Leicester and Bradford & Bingley’s high street networks, Santander now has 1327 branches and 25 million customers. It’s clear then, that Horta-Osorio knows a thing or two about running a big retail bank in the UK market. The UK’s Telegraph newspaper claims that what really sets him apart is how he dealt with Santander’s ﬁnancial crisis. After taking over as chief executive in 2006, he pulled Abbey off the mortgage market. He later explained that this was because the mortgages being sold were effectively selling at a loss. He focused on costs and continued to absorb its new UK subsidiary, which had been bought in 2004. His caution paid off when, in 2009, Santander was able to purchase Alliance & Leicester at a cut-price and bought the branched and deposit book of Bradford & Bingley when it was nationalised. The two deals transformed the organisation and proﬁts continued to grow throughout the crisis. The 46-year-old was chief executive at Santander UK since 2006, but started his career at Citibank Portugal where he was Head of Capital Markets. He then worked for Goldman Sachs in New York and London before joining Groupo Santander as chief executive of Banco Santander de Negocios Portugal in 1993. For Horta-Osorio the new role at Lloyds was apparently impossible to turn down and he is looking forward to the challenge of taking it to the next level. And it will certainly be a challenge. The UK government is not likely to begin reducing its shareholding for at least a year. Lloyds also faces the regulatory difﬁculties regarding being ordered to reduce in size. Living up to and delivering share price growth on a GBP£20 billion investment won’t be easy, but then this is a man who lists “swimming with sharks” as one of his hobbies, so we’re betting he’s up to the job.
Portuguese banker Antonio Horta-Osorio is set to take over at Lloyds Banking Group as its next chief executive. So just what does he have in store for Britain’s biggest retail lender?
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UPFRONT TOP TEN 19
Top 10: strategic technologies for 2011 Gartner has released its top 10 strategic technologies for 2011, which include:
Cloud computing: Existing along a spectrum from open public to closed private, Gartner predicts that the next three years will see the delivery of a range of cloud service approaches falling between these two extremes. Vendors will offer packaged private cloud implementations that deliver public cloud service technologies. Gartner expects large enterprises to have a dynamic sourcing team in place by 2012 that is responsible for ongoing cloud sourcing decisions and management.
Mobile applications and media tablets: Gartner estimates that by the end of 2010, 1.2 billion people will carry handsets capable of rich, mobile commerce providing an ideal environment for the convergence of mobility and the web.
Video: Over the next three years, Gartner believes that video will become a commonplace content type and interaction model for most users, and that by 2013, more than 25 percent of the content that workers see in a day will be dominated by pictures, video or audio.
Social analytics: Social network analysis involves collecting data from multiple sources, identifying relationships and evaluating the impact, quality or effectiveness of a relationship.
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Social communications and collaboration: Gartner predicts that by 2016, social technologies will be integrated with most business applications. Companies should bring together their social CRM, internal communications and collaboration, and public social site initiative into a coordinated strategy.
Next generation analytics: It is becoming possible to run simulations or models to predict the future outcome, rather than to simply provide backward-looking data about past interactions, and to do these predictions in real-time to support each individual business action.
Context-aware computing: Gartner predicts that by 2013, more than half of Fortune 500 companies will have context-aware computing initiatives and by 2016, one-third of worldwide mobile consumer marketing will be context-awarenessbased.
Storage class memory: Gartner sees huge use of ﬂash memory in consumer devices, entertainment equipment and other embedded IT systems. It also offers a new layer of the storage hierarchy in servers and client computers that has key advantages – space, heat, performance and ruggedness among them.
Ubiquitous computing: As computers proliferate and as everyday objects are given the ability to communicate with RFID tags and their successors, networks will approach and surpass the scale that can be managed in traditional centralised ways. This leads to the important trend of imbuing computing systems into operational technology, whether done as calming technology or explicitly managed and integrated with IT.
Fabric-based infrastructure and computers: In its basic form, a fabric-based computer comprises a separate processor, memory, I/O and ofﬂoad modules (GPU, NPU, etc.) that are connected to a switched interconnect and, importantly, the software required to conﬁgure and manage the resulting system(s).
Banks of time As smartphone apps such as Foursquare and Gowalla threaten to take banking into the next stage of its technological evolution, FST takes a look at the game-changing technical revolutions that have shaped the history of the banking world. s far back as the 18th century, when paper money was ﬁrst introduced as redeemable bonds against a bank’s holdings of real gold and silver, innovation in the banking world has been fast-paced, ingenious and epoch-deﬁning. But it wasn’t until the 1960s that technology ﬁrst began to shape the banking industry. Today’s banking customers might be well-versed in the use of their contactless payments, mobile transactions, social media apps and 24-
hour access to their funds, but they would have a hard time adjusting to how banking used to be before the days of even simple ATMs. Each technological advance in banking has brought with it a slow transformation in the way we all bank, enabling us to adopt and adapt to new ways of banking, while also allowing us to enjoy that human touch that ﬁrst set banks on their upward trajectory many hundreds of years ago. Technology, it seems, hasn’t eroded the essence of banking; it has simply augmented the service, convenience and security of banking.
The ﬁrst technical interface bank customers were offered came in the form of a forerunner to the ATM called the Bankograph. An experimental Bankograph was installed at the City Bank of New York in 1961 and allowed users to deposit coins, cash and cheques via its automated envelope deposit mechanism. The machine did not dispense cash, so could not be considered a true ATM.
1969 Both MasterCard and Visa were, at this time, in their ﬂedgling and formative years. Visa began as part of Bank of America’s credit card programme, before relinquishing control of BankAmericard in 1970, at which point the baton was taken up by the various issuing banks that had come to use the BankAmericard. In 1974, it went global in 15 countries, and became Visa. MasterCard’s evolution was a little more straightforward. Formed in 1966, a group of Californian banks founded the Interbank Card Association, joined later by large banks from the eastern seaboard, but it wasn’t until 1979 that the ‘MasterCard’ name was adopted as standard.
1973 The ﬁrst point of sale (POS) devices were developed by IBM in 1973 and these early electronic cash registers were ﬁrst installed at Pathmark Stores in New Jersey in 1974. This archaic system was extremely simple but was the ﬁrst commercial example of client-server technology, peer-to-peer communications and local area network.
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1966 Five years later and it was the turn of the Japanese and Brits to present the world’s earliest ATMs to a suspicious banking public. Tokyo saw the ﬁrst automated cash-dispensing device, which was a simple machine used for credit cards only; it did not actually connect to a customer’s account. In 1967, a Barclays Bank branch in north London installed the world’s ﬁrst true ATM, with the bank going so far as to employ a famous comic actor to be the ﬁrst user and thus ensure maximum publicity to what was, at the time, a frighteningly futuristic device.
1981 During the 1980s, the proliferation of ATMs and the ability to pay for goods in store with the use of one’s debit card brought untold levels of convenience to the consumer, but it wasn’t until home banking was ﬁrst offered as a service in 1981 that banks and consumers began to see the endless potential for service that banks could offer. Home banking began when four New York banks offered their customers the use of the antiquated videotex system.
TECHNOLOGY TIMELINE 21
Late 80s It is easily forgotten now but, before the internet, the term ‘online’ could easily and accurately refer to the telephone, but it is still something of a misnomer to refer to telephone banking as online banking. However, telephone banking in the late 80s was rather innovative, with customers using their numeric keypads to send tones down their phone lines that acted as instructions to the bank.
1997 Early 00s
Nokia and Coca Cola combined in Finland in 1997 to allow mobile users to pay for drinks from specially enabled vending machines via SMS text messages. This was the world’s ﬁrst example of mobile commerce.
The rapid acceleration of technology after the millennium saw the banking industry enter a period of trial and error. If the technology was there, customer trust and conﬁdence wasn’t; if a service was in vogue, often the technology was unreliable or insecure. Mobile banking was restricted to SMS-alerts delivered on small, colourless screens and appeared, at the time, to have hit a plateau.
2007 The introduction of smartphones such as the iPhone brought sweeping changes to the banking industry. Users could now access account information, make payments, check balances and transfer funds, anytime and anywhere. A wealth of Apps have since been introduced that allow account holders to pretty much do any type of banking they like, on the move and at their own convenience.
2009 Social media websites have are now increasingly becoming the new forums for banking, although both consumers and banks have been rather hesitant to fully embrace the potential of this relationship, a reluctance stemming from security concerns and worries over a blurring of the typical relationship banks hold with their customers. However, this next phase of banking is certainly here to stay.
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Online banking is thought to have been ﬁrst offered in the USA in 1995 by the Presidential Savings Bank, a step that has opened up a whole new world of customer convenience, cost savings for banks and potential security threats. After the turn of the millennium, with the Y2K bug having failed to materialise and cumbersome dialup connections universally usurped by broadband services, conﬁdence in banking online surged.
Chip and Pin is introduced into the UK. This new technology saw the process of ‘paying by card’ – the swiping of a card’s magnetic strip and the signing of a receipt that was then veriﬁed by the teller – overhauled. Now, the customer had to insert their card, complete with its new chip, into a PIN-pad, where they are then asked to enter their PIN in order to verify payment. This process has been adopted in pretty much every European country and in large parts of Asia.
2008 While the US may seem to lag behind much of Europe and Asia in terms of its reluctance to adopt the chip and pin standard for smartcard payment, it is a forerunner in contactless payments, implementing ‘Wave and Pay’ technology into every day, busy American life. It is estimated that next year there will be more than 100 million contactless payment cards in the country.
Although there are no banks yet ofﬁcially afﬁliated with Foursquare – the geo-location app that lets users ‘check in’ to certain destinations and earn rewards from retailers who can see they’ve been loyal patrons – North Shore Bank has hit upon a novel idea of rewarding the ‘mayors’ of their 44 branches (‘mayors’ are those individuals who have checked in to a particular branch more than any other person) with a US$5 Subway gift card. A small gesture thus far, but one that could potentially kick-start a whole new trend in banking reward, retention and relationship.
UPFRONT IN MY VIEW
Banks must answer cries for excellent customer service By Phil Stewart, Customer Service Director, Virgin Media Business
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hen the recession hit, it wasn’t just the global markets that nosedived; consumer conﬁdence in banks did too. With public trust dented, banks have got a lot of work to do to get back in their customers’ good books. An obvious place to start is to focus on providing a much greater level of customer service. Take NatWest for example. It recently started a campaign to become “Britain’s Most Helpful Bank”. And Metro Bank, the UK’s ﬁrst new high street bank for 100 years, launched with the promise of industryleading service. Taking this approach allows banks to demonstrate that they’re listening to what their customers want and are working hard to improve the level of service that they’re providing. To ﬁnd out how well the banks are doing at customer service, we recently carried out a study of some of the UK’s biggest high street banks. The results were pretty good. We found that banks were answering most calls in around one minute and 14 seconds, with one bank answering calls in just 34 seconds on average. We also discovered that banks seemed to be prioritising calls from business customers over those from consumers. Calls to business help lines were answered more than 30 seconds faster than their consumer counterparts. As part of our customer service study, we also looked at how banks are interacting with their customers online. We found that just one bank had started to respond to its customers’ enquiries on Twitter, despite Britain’s high street banks being tweeted about 180 times a day. This seems like a missed opportunity to me. Twitter presents banks with an excellent platform for strengthening the relationships that they’ve built up with customers over the years through both in-store interaction and the call centre. With the right technology and training, banks can manage large numbers of inbound enquiries quickly and consistently. Taking this multi-channel approach can ensure that customers always receive the quality of customer service that they expect, regardless of how they get in touch. Fortunately that message seems to be getting through. Just the other day I spotted that another one of Britain’s high street banks had joined Twitter. As organisations start to place more value in customer service, it won’t be long before more banks sign up to the social networking site.
EUROPEAN NEWS 23
Accounting error he ﬁnance director of UK travel company TUI has quit after it came across GBP£117 million, which its systems had wrongly indicated was owed by customers. The discovery quadruples an estimate by TUI in August, when it ﬁrst uncovered the problem, that it would have to write off GBP£29 million. Paul Bowtell, Chief Financial Ofﬁcer, handed in his resignation and will leave the company at the end of 2010. The problem arose from the use of two separate computer systems by the business after its merger with First Choice in 2007.
Falling down K house prices fell for the third month in four in October, indicating the downturn in the country’s property market is becoming more entrenched. Mortgage lender Nationwide said the average price of a property fell 0.7 percent in October after a ﬂat reading in September. That was almost twice the drop economists had expected and meant the three-month on three-month rate of decline accelerated to 1.5 percent, the largest such decline since April 2009. The annual pace of house price growth slowed to 1.4 percent from 3.1 percent. Nationwide said that if the recent trend was to continue to the end of the year, it would leave prices ﬂat to slightly lower over 2010 as a whole – a far cry from the rise of around six percent recorded in 2009. The lender’s ﬁgures tally with a raft of data showing last year’s property market recovery has moved into reverse as Britons prepare for the toughest government spending squeeze in generations. Mortgage approvals have already fallen to their lowest in over a year as banks restrict credit to all but the safest of borrowers.
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Unemployment lowest in 18 years or the ﬁrst time in 18 years, unemployment in Germany fell below three million in October, according to ﬁgures released by the Federal Labour Ofﬁce. The seasonally adjusted jobless ﬁgure showed rather less improvement, with a decline of just 3000 in registered unemployed for a total ﬁgure of 3.153m, or 7.5 percent of the labour force. The news coincided with the ﬁrst anniversary in ofﬁce of the centre-right coalition of German chancellor Angela Merkel. Breaching the three million mark was hailed as a “great success for the people, the wage partners, the Merkel government and the federal labour ofﬁce”. Unemployment soared in Germany after uniﬁcation between east and west in 1990, and hit a peak of more than 5 millon in 2005. Jobless rates are still much higher in East Germany than in the west, with more than 10 percent out of work in most eastern states, compared with just 3.8 percent in Bavaria, and 4.4 percent in Baden-Württemberg. Analysts point to the fact that the steady improvement in unemployment ﬁgures reﬂects real employment creation as the recovery of the German economy – now forecast to grow by 3.4 percent this year – results in new jobs, rather than merely recovering old ones.
Why your toilet paper is shrinking When times are tough, companies don’t want to raise prices. Instead the things we take for granted get a little smaller. verything shrinks in a recession: GDP, investment portfolios, even the products on store shelves. Consumer goods companies know that customers won’t go for price increases during a downturn. Instead they often use a different tactic to offset things such as
new competition or the rising cost of raw materials: cutting quantity while maintaining price. Yet it may not be obvious that your ice cream or OJ containers have shrunk. Manufacturers must note new specs on packaging, but the changes don’t have to be advertised (ever seen a now smaller! label?). Here’s a look at one of the most recent examples.
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2010 Size reduced in August to 10.4 by 9.3 centimetres. Change includes a 10 percent strength product enhancement
2006 Size drops to 11.4 by 9.3 centimetres in July, another ‘softness enhancement’ and pattern are added
1999 In July, sheet size trimmed to 11.4 by 10.4 centimetres. Kimberly-Clark makes “softness enchancement”
1995 Size of toilet paper sheet is 11.4 by 10.4 centimetres when Kimberly-Clark acquires Scott Paper
Shipping costs Smaller packages allow more units to ﬁt on a truck, making transportation more efﬁcent.
new sheet si ze reduced the height of a four-pack fr om
22 to 20cm
There goes the neighbourhood These products all shrank in 2010; as with Scott, it wasn’t the ﬁrst downsizing for most. Some said innovation was behind the cuts.
Cottonelle Double roll
Angel soft Double roll
Kimberly-Clark February 2010
Georgia-pacific April 2010
10.6 centimetres wide
12-17% 260 308
Charmin Ultra Soft Big Roll Procter & Gamble July 2010 10.8
increase in nt o f the amou cot t can produc t S ck ﬁt on a tru
Quilted Northern Soft and Strong Double Roll Georgia-pacific September 2010 11.4 10.1
estimates that , with fewer truck s, its fuel use will dr op by
1305.9 litres a year
286 sheets Credit: money.cnn.com
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Top performers The Bloomberg Businessweek 50 is a look at the 50 top performing stocks in the Standard & Poor’s 500-stock index over the past ﬁve years. Strongly represented are the old-line companies like Union Paciﬁc, while the forces of innovation powered others like Apple and Google up the ranks. Overall there was a fairly even split across a wide range of industries:
Below the radar risks With forecasting the name of the game, Ernst & Young’s Business Risk 2010 report has identiﬁed the top ﬁve risks sitting ‘below the radar’ that may come into play in future years. Inability to innovate: As technology becomes more important in products and business models, businesses will need to keep up the pace to ensure their innovations don’t stagnate. The life sciences sector will also need to ensure a deﬁned path through R&D and open collaboration once patents run out on blockbuster drugs. Maintaining infrastructure: For many sectors, higher costs of capital and the dire state of public ﬁnances are becoming bigger sources of concern. In addition, many tremendous infrastructure upgrades are already being called for to meet environmental and technological challenges. Emerging technologies: Creeping its way towards the top 10, variations on the theme ranged from risks posed by high-frequency ﬁnancial trading to managing social media effectively in consumer products.
Healthcare Energy Technology Industrial Commodities Other Manufacturing Internet Transportation
18% 16% 16% 14% 14% 8% 8% 6%
Gartner IT outlook for 2014 hile worldwide enterprise IT spending will grow over the next several years, the ‘happy times’ of the pre-recession era won’t return anytime soon. Instead, Gartner Inc. is projecting a slow-growth period that may very well last into the year 2014. Even so, the research ﬁrm predicts that some areas of IT will see considerable investment in that period. The use of cloud computing, social media as business tools and what’s called ‘context-aware computing’ will all be areas of increased focus during this period, Gartner predicts. And CIOs who succeed will understand that it’s the consumer who will drive technology – versus technology driving the consumer. This dynamic should be a game-deﬁner for decades, as opposed to the next couple years. “At the heart of the change, the next 20 years will be intelligence drawn from information,” says Peter Sondergaard, Senior Vice President at Gartner and Global Head of Research. “Information will be the ‘oil of the 21st century’. It will be the resource running our economy in ways not possible in the past.’
Taxation risk: The threat of substantial increases in taxation in coming years poses a very real risk already, with the size of public sector cuts required unlikely to be achievable without cuts in major ‘front-line’ services. Pricing pressures: This comes down to a concoction of reasons that sit in the top 10. Coupled with this, companies have already started to feel the pressure to reduce costs and optimise their pricing strategies.
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Home ownership Half the world is unbanked
Just a century ago, nine out of 10 homes were rented in the UK, compared to only one in three today. Since 1976, owner-occupied households have risen from 55 percent of all households to 66 percent today. Meanwhile, local authority housing provided by government councils has gone down from a third of all housing to just one in 20 today.
Limited information on the size and nature of the global population using ﬁnancial services limits policy makers’ abilities to identify what’s working and what’s not, and it limits ﬁnancial services providers’ abilities to identify where the opportunities lie and where they could learn from current successes. A new report, Half the World is Unbanked, provides an improved estimate of the size and nature of the global population that does and does not use formal (or semiformal) ﬁnancial services. This paper builds on a data set compiled from existing cross-country data sources on ﬁnancial access and socio-economic and demographic characteristics to generate an improved estimate of the size and nature of the global population that does and does not use formal (or semi-formal) ﬁnancial services.
Key ﬁndings include:
2.5 billion adults
, just over half of the world’s adult population, do not use formal ﬁnancial services to save or borrow
of the unserved adults live in Africa, Asia, Latin America and the Middle East
1.2 billion adults
who Of the use formal ﬁnancial services in Africa, Asia, and the Middle East, at least two-thirds, a little more than
800 million, live on less than US$5 per day (purchasing power parity adjusted) 20%
Regulatory and policy 1976 Owner-occupied
environments, as well as the actions of individual ﬁnancial services providers, affect usage levels in a way that is, to a large extent, independent of countries’ socio-economic and demographic characteristics
Source: UK Housing Review 2009/10, Chartered Institute of Housing , December 2009
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E-crime overtaking real crime
Interest bill he Republic of Ireland faces an interest bill of about €7 billion on its national debt next year, says a senior department of Finance ofﬁcial. Speaking to the Dáil’s Committee on Public Accounts, the department’s Secretary General, Kevin Cardiff, agreed
under questioning that an estimate of €7.5 billion was “about right” for the interest bill faced by taxpayers on the national debt. Committee member, Deputy Sean Fleming, estimated that, taking into account the €50 billion bill for bailing out the banks, the national debt would hit €150 billion at the end of the year.
Flight delays n the wake of the spectacular engine failure on the Qantas A380 ﬂying between Singapore and Sydney in early November, UK-based Rolls-Royce Group Plc has said it will miss its 2010 proﬁt target. Airbus SAS said deliveries of its ﬂagship aircraft may be down next year as the fallout from the incident continues to ripple through the industry. Rolls-Royce said growth in underlying proﬁt would be “slightly lower” than the four percent to ﬁve percent it had forecast in July. Airbus Chief Executive Ofﬁcer Tom Enders said in a statement that producing new engines and spare parts for existing customers would be the company’s priority, which could impact the delivery schedule of the A380 next year. The aftermath of the engine explosion, which investigators say was caused by an oil ﬁre, could undermine the gains Airbus had made on the A380 this year. Emirates, which has 90 A380s on order, said Rolls-Royce must make sure it prevents a similar incident. Qantas grounded its six A380s immediately after the explosion, but said in mid-November that they would be back in the air “within days”.
E-crime overtaking real crime Risk management consulting ﬁrm, Kroll, has reported that for the ﬁrst time since 2007, when the company began its annual survey on crime, electronic fraud surpassed physical scams as the most common form of fraud in the world. Companies reporting indicated frauds in the previous 12 months 2010
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Information theft, loss or attack
Theft of physical assets of stock
Management conﬂict of interest
Vendor, supplier or procurement fraud
Internal ﬁnancial fraud or theft
Regulatory or compliance breach
Corruption and bribery
IP theft, piracy or counterfeiting
EUROPEAN NEWS 29
35,000 people in the UK use the internet to check their bank account balance online
EU energy strategy to cost
€1000000000000 The European Commission is calling for one trillion euros of investment to improve efﬁciency and reduce pollution in the EU over the next decade. The Commission called for measures to save energy, reduce household utility bills and secure supplies in a sustainable way across the 27-nation bloc. The EU executive called for the bloc to coordinate its energy policy with third countries in its ‘Energy 2020’ strategy. Securing energy supplies gained urgency following a gas price dispute between Russia and Ukraine in January 2009, which left several EU states without Russian gas. The Commission also identiﬁed transport and buildings as the two sectors with the biggest potential for energy savings. The EU has already set a goal of reducing greenhouse gas emissions blamed for global warming by 20 percent by 2020. The Commission proposed major projects to strengthen Europe’s leadership in energy technology and innovation through new technologies, electricity storage, research on second-generation bio-fuels and energy savings in urban area.
Did you know A total of 57 percent of UK banking customers want an alternative to their current bank – but only 38 percent would consider moving their current account to a brand new bank.
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Strikes hurting economy rench Finance Minister Christine Lagarde has said that strikes and blockages are damaging France’s image and risk harming the economic recovery. Filling stations ran dry after the country’s 12 reﬁneries halted production following strikes, part of nationwide protests against government pension reforms seeking to raise the legal retirement age in order to reduce future budget deﬁcits. The events subject France to material harm in the form of businesses losing orders and partial layoffs, and its image abroad is also suffering, says Lagarde. “Today we are losing an opportunity for France. We got through the crisis in better shape than others and we are picking ourselves up, rebooting growth and bringing unemployment down. Losing that opportunity would be very serious.”
Company Index Q4 2010 Companies in this issue are indexed to the first page of the article in which each is mentioned. AAP3 88, 89 Abbyy ACT Conferencing 104, 105 Barclays 84 Betfair 120 BIG FIX Europe 48, 49 Blackberry IFC CIMCON Software 76, 77 Commonwealth Bank of Australia 74 Commvault 13, 56, 57 Deutsche Bank 74 eBay 58, 120 Ernst & Young 114 European Central Bank 64, 128 European Commission 128 European Payments Council 128 Facebook 58 Financial Insights 52 Frost & Sullivan 52 Gigaspaces 4, 90 Good Technology 2 IDC 82 IND Group 96 Infor 124, 125 Kensington 50, 51, OBC Legg Mason 92 Lloyds Banking Group 18 McKinsey & Co. 74 Metro Bank 32
Misys 74 Ngenera 118, 119 Nuance 6, 98, 99 OECD 132 Ofﬁce of Fair Trading 32 Open Text 43 Oracle Osterman Research 58 Overtis PayPal Inc. 126 PricewaterhouseCoopers 52 Promosoft 72, 73, IBC RBS 38 RBS North America 92 Rule Financial 68 Santander 18 Siemens 81 Standard Bank 78 Standard Life 44 Symantec 52 Tesco Bank 32 TD Bank 92 Tieto 8, 106, 107 Unisys 30 Verint System 10, 112, 113 Virgin Bank 32 Winmagic 60, 61 ZOHO 62, 63 Zopa 120
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Theblnew kids ock on t he
A wave of new banks has started hitting the UK’s high street. With a focus on customer care will these new contenders cause an evolution – or a revolution – in banking? By Rebecca Goozee
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COVER STORY 33
It is no surprise
that consumer trust in UK banks is continuing to shrink following the chaos of the global fi nancial crisis. The Northern Rock collapse, followed by the credit crunch and then the Supreme Court’s bank charge ruling, have all left a nasty taste in the public’s mouth as trust rates continue to erode. Indeed, banks are going to have to try harder if they want to appease the British public, with less than one in three people trusting their bank according to a Which? report. Enter a new generation of banks looking to revitalise the UK high street. Metro Bank – perhaps the most well known of this new era of banks – became the fi rst new high street bank to open in Britain for more than a century when it began trading in July. The bank’s founder, Vernon Hill, who also founded US bank Commerce Bancorp, promises to set it apart from the old British banking model as truly customer-focused and offering a “new, convenient way of banking”. And Metro Bank isn’t the only start-up to hit Britain’s high street over the last 12 months, with Tesco Bank, Virgin Bank, Walton & Co and Home & Savings Bank all joining in. But, despite the customer toilets, dog biscuits and household name backing offered by the new banks, can they mount a serious challenge to the dominance of the Big Four? Anthony Thomson, Chairman of Metro Bank, defi nitely thinks there’s potential, particularly when it comes down to customer service. When I sit down with him in September, Thomson is pleased with the progress of the brand new business so far. “We know from our experience in the last six or eight weeks that branch banking is very important to people. And we equally know from experience that people want to be able to bank at various times of the day, whether that’s before work or at the weekends. “One of the key differences is we want to give people a better experience. Part of that is value, which comprises of several elements: service, convenience and clear, transparent products. Th is is what represents value to people.” Thomson goes on to explain that Metro Bank can do things that other banks can’t. “Customers don’t need to make appointments, we can open accounts within 15 minutes and we can print permanent chip and pin debit cards within that time frame too.” As well as super quick account opening and almost instant debit cards, Metro promises that stores (the bank doesn’t appear to like using the word ‘branch’, which may be something to do with the customer service side of things) will be open every day, including Sundays, apart from four public holidays a year. Stores will have customer toilets and will allow dogs, providing them with a bowl of water and a bone. The bank will also have free coin counting machines in its branches, which can be used by both customers and people who do not have products with it, as well as safe deposit boxes that can be rented out for €118 a year. Metro also plans to offer personalised business banking services, giving local
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e iv g to t n a w e w is s nce e r e f if d y e k e h t f o u e, e l a v “On is t a h t f o t r a P nce. ie r e p x e r e t t e b a e l p peo ice, v r se s: t n e m e l e l a r e v which comprises of se , transparent products. r a e l c d n a e c n ie n e v c on e” l p o e p to e u l a v s t n T his is what represe managers the freedom to make decisions on loans for local companies.
Challenges But it isn’t all extended hours and doggy treats at Metro Bank. Thomson explains that he saw four key challenges when they opened the bank. The fi rst was a concern around how the bank would be seen by regulators. “The answer to this, thankfully, was that the regulators were very keen to see more competition and consumer choice on the high street,” says Thomson. Second on the list was the location of the branches. Thomson explains that choosing the right locations to fit the model was vital. He means corner buildings with high visibility and high footfall, with high ceilings and lots of glass to emphasise the feeling of space. “Th is was, and continues to be, a tough challenge because we can fi nd these sites, but we’re looking at occupying 200-250 of these sites inside the M25 within the next decade.” The third challenge for Thomson is all about IT. He says that Metro Bank was looking to develop a state-ofthe-art core banking engine, paid for on a per-transaction per-month basis in order to spread IT platform costs. “We’re kind of unique in the sense that we have a system
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that we didn’t have to build from scratch and that is almost pay-as-you-go.” The fourth challenge on Thomson’s list – perhaps the most difficult and certainly the most long-term – is persuading people to change from their existing bank to Metro. “Th is, of course, we didn’t know the answer to until we opened the door,” he explains. But according to Thomson, early indications have exceeded expectations, although he remains cagey over the precise joining figures. With the top five banking groups having over an 80 percent share of the crucial current account market, these new-style banks are going to have to try mighty hard to persuade customers away from their traditional competitors. And with Liz Hartley, Principal Consultant for Datamonitor’s Financial Services Team, predicting Metro Bank winning a 0.5 percent market share in the sector by 2015, it’s not looking overly positive. That said, Hartley has previously admitted that, “The new entrants will bring a more dynamic aspect to fi nancial services, using tools learned in the supermarket and fast food sectors to generate real consumer engagement to drive business growth”. Datamonitor’s Daoud Fakhri is also sceptical about how new players like Metro Bank will impact the market,
Complaints against the big banks reach
7143 per day
COVER STORY 35
claiming it to be somewhat “limited”. He says that the likes of Lloyds or RBS aren’t going to be unduly worried about the new arrivals. “The biggest problem they face, that will prevent them from taking huge amounts of market share, is simply customer inertia – people in this country just seem quite resistant to moving from bank to bank. “Obviously, the new banks don’t come with any of the baggage of what’s happened and that’s a big mark in their favour,” adds Fakhri. Indeed, with no negative perceptions, they haven’t had to deal with any of the backlash over bank charges or poor service, so effectively that means starting with a blank slate. “Th is is a good starting point for these new players, because if they can make a big play on service, and I know Metro Bank in particular are really focusing on their customer service proposition, then that’s where they could have a competitive advantage over the banking establishment,” continues Fakhri. “Th is will work in their favour, but as to whether or not it’s going to be enough to attract new customers, well, I’m doubtful at best.” And if you look back a decade into the history of the fi nancial services industry in the UK you can see why Fakhri is somewhat pessimistic: there were a spate of new entrants like Coot, Intelligent Finance, Egg and so on, all coming up with innovative ways of dealing with their customers and focusing on the internet channel. There was a lot of expectation that these new start ups were going to shake up the market but, unfortunately, they all failed to do so. Egg was sold off, Intelligent Finance is looking like it’s also going to be sold off and Coot is gradually being wound down by Santander. However, on the upside, 2010’s entrants to the market are all focusing on face-to-face, in-branch proposition, which will set them apart from their predecessors. Fakhri believes that banks have fi nally recognised that it was wrong to neglect the branch networks, which they did throughout most of the 1990s and early part of this decade. “They’ve fi nally woken up to the fact that branches are actually the most effective channel for building customer loyalty and acquiring new customers. And this is where Metro could potentially have an advantage over the likes of those internet-only providers. Likewise, Tesco Bank also has a ready-made branch network set up, so that could work,” says Fakhri. In fact, in a report released earlier this year, Datamonitor predicts that Tesco Bank will secure more market share than Metro Bank over the next three years, with 1.5 percent of the current account market, leaving Metro Bank languishing at 0.5 percent. Fakhri believes this is down to the stronger brand image. Tesco are a familiar player on the high street and they have achieved quite a lot of success in the fi nancial services arena so far. “If you look at their credit cards for example, they account for about one in 10 of all credit card transactions, which is actually quite good. They’ve also been good at linking together their fi nancial products with their club card scheme so for example, you can get Clubcard points on your credit card transactions and so on. They’ve got
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Customer care? Earlier this year the Financial Services Authority (FSA) criticised the UK’s biggest high street banks for the poor way they deal with customer complaints. Five of the unnamed banks have since agreed to make big improvements and two are being investigated further and may suffer large ﬁnes. The FSA blamed a lack of interest by senior bank management, bonus schemes that inhibited staff from paying compensation and poor decisionmaking. The FSA demanded changes after investigating the way the banks had handled 600 sample complaints. These complaints were mainly related to day-to-day banking problems as opposed to the miss-selling of payment protection insurance or overdraft charges, which have been dealt with separately by the FSA. The banking industry receives about three million complaints a year. Last year, the Financial Ombudsman Service (FOS) reported that many of the cases it dealt with, banks appeared to be deliberately fobbing off their customers in the hope they would go away. It said that customers were dealt with “dismally” and eventually favoured more than half the customer complaints that it dealt with. The FSA would not reveal the individual banks that it examined, but did point out that these ﬁve banks were responsible for 70 percent of the complaints that ﬁrms receive and that more than 60 percent of the unresolved complaints ended up with the FOS. When the ombudsman’s ofﬁce started naming and shaming the most complained about banks in the second half of 2009, the main culprits were Lloyds Banking Group, Barclays, RBS-NatWest, Abbey (now Santander) and HSBC. HSBC has since said that it is not one of the ﬁve being forced to change its ways by the FSA. Eric Leenders of the British Bankers’ Association (BBA) told the BBC that the industry needed to improve: “Clearly more needs to be done – that is why the BBA is working with the industry to bring all banks up to the standards of the best. This is what both FOS and the banks have started to publish detailed complaint information”. Source: bbc.co.uk
The FSA also found in its survey that: • Thirty-six percent of complaints it examined had been investigated poorly or inadequately, especially by staff in branches or call centres • Eighteen percent of decisions had been wrong and unfair to the customer • Where compensation was offered, it was often not enough • Correspondence was inadequate, with banks failing to tell the customers the outcome of their investigation in a way that was “fair, clear and not misleading” • Three out of the ﬁve banks misused their “two-stage” complaints procedure, delaying the resolution of the complaints • Four out of the ﬁve banks were too slow at dealing with complaints • Three of the ﬁve banks failed to tell customers they could go to the FOS if they were still unhappy with their bank’s reply
great presence in the market and a ready-made branch network combined with the fact they are well regarded by their customers and that credibility, track record and presence is going in their favour.” Indeed, the strong brand image, ubiquitous presence and a proven track record of success in fi nancial services, leveraging a loyalty scheme and its second-to-none data mining means that Tesco Bank is best placed to see success. Will Tesco do for banking what it has done for the grocery sector? Only time will tell on this one. But, besides attracting customers, Fakhri believes that the time it will take to build up assets will also stand in the way for all these new players. The wholesale markets, for example, are obviously quite lacklustre compared to 2007 and as such it will be difficult to lend in any great number, in any great quantities. As such, it will remain difficult to compete with Lloyds or Santander, for example, simply because they won’t have sufficient retail deposits to fi nance that lending. At the moment, says Fakrhi, Metro Bank’s products appear to be fairly uncompetitive on price. “Its instant access savings account, for example, is only offering 0.5 percent. Virgin Bank has also said that it is likely to charge a monthly fee for its current account when that launches. The new entrants are majoring on service rather than price, and this may limit their appeal to that large segment of price-conscious consumers. Whether longer opening
Cover story.indd 36
hours are enough to tempt significant numbers of consumers to switch is, I think, debatable.” Official red tape is also hindering new banks from challenging the traditional banking giants, according to an official review by the Office of Fair Trading (OFT). The OFT has found that potential market entrants are unable to grow their customer bases because of the difficulties in obtaining accurate credit information. These barriers are weakening the competitive edge and reducing consumers options, says the OFT. With complaints against banks reaching a whopping 7143 per day, according to the Financial Services Authority (FSA), the OFT fi ndings are particularly worrying as experts fear that high street banks won’t be punished if customers have few alternatives. Clive Maxwell of the OFT has said in relation to these fi ndings that vigorous competition is critical for personal and small business customers, helping to support growth and productivity in the economy. “If firms face significant difficulties in entering and competing in the market, incumbents have less incentive to reduce costs, innovate and price competitively.” It appears that with attention to customer service and price options there are many opportunities for these new players to succeed on the UK high street. While it is doubtful that they’ll be serious contenders for the traditional banks any time soon, waiting in the wings for more inevi-
(Above Left) A woman performs as the ﬁrst branch of Metro Bank opens to the public in Holborn on July 29, 2010 in London, England. The bank is the ﬁrst UK high street bank to open in the last century, with two branches currently in central and West London opening seven days a week. (Above Right) Tesco money leaﬂets are arranged for a photograph at a Tesco supermarket in London.
COVER STORY 37
How the new banks stack up Virgin Money: Virgin Money made its move into regional retail banking with a €14.8 million offer for a small private bank, the Church House Trust, in January this year, and short-cut the process required for getting a licence to run a bank. The existing Virgin Money already consists of savings and investment products, while high street branches with current account and mortgages are due to be up and running by the end of the year. Virgin says that the bank will be run according to the company’s lines of simplicity and value for money. Walton & Co: Walton & Co is the baby of a British city analyst with backing from Blackstone, a private equity group. It is aimed at wealthy individuals or small businesses and will also work on an old-fashioned personal-contact approach. The ﬁrst two branches will open next year. Tesco Bank: In August 2009, Tesco announced that it was building a bank ‘from scratch’, and it has already acquired a 50 percent stake RBS had in its personal ﬁnance division. Subject to regulatory approval, new savings products and mortgages will be launched at the end of 2010/11, with current accounts to follow in the second half of 2011, to take the company to a full-service retail bank.
table slip ups in the fi nancial services industry could pay off in the long term. Either way, it looks like a waiting game for these alternative banks. And if the big boys on the high street do get worried about the new entrants on the market, Fakhri advises three main measures to ensure they combat any immediate or future threat. First, reward customer loyalty, second position themselves so they know that the customer wants and how to deliver, and third, convince customers that they are on their side. “Traditional banks can learn much from the success of retailers,” says Fakhri. “We believe that they should not rely on inertia to ensure they continue to dominate. Retailers have powerful tools on their side, such as a head start in knowing what consumers want due to loyalty schemes and data mining. Th is detailed knowledge about consumer preferences, combined with the market becoming more fluid due to the sale of Northern Rock and sell off of parts of RBS and Lloyds Banking Group, could pose a significant threat in this decade.” There’s no doubt that customer service has a role to play in the bank of the future, so if these new banks want to position themselves in the best possible place, they need to use this to their advantage. As Metro Bank’s Thomson explains, “Our model is focused on giving people a better customer experience and so far so good,” which looks like a pretty good place to start from to me.
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Metro Bank: On March 5, 2010, the Financial Services Authority (FSA) granted Metro Bank the ﬁrst full service banking licence to be granted for a new high street bank in more than 100 years. Co-founded by Anthony Thomson and Vernon Hill, Metro Bank opened its ﬁrst store in Holborn on July 29, followed shortly by a second store in Earl’s Court. The bank promises to be open early and late, seven days a week, as well as offering “great online banking, ‘instant’ bank cards, and access to local advisers by phone 24/7”. Home & Savings Bank: According to numerous reports earlier this year, US private equity giant Blackstone had raised more than €295 million from investors to launch a new high street bank called Home & Savings Bank. Stuart Sinclair, former head of Tesco Personal Finance and director of RBS’s retail banking operations, was said to be among the senior executives recruited to run the new bank, which has yet to be granted a licence by the FSA. Aldenmore: Essentially the reincarnation of private bank Rufﬂer after it was sold to private equity group Anacap Financial Partners last year combined with Base Commercial Mortgages, Aldenmore was launched in July 2009. According to Moneyfacts, by combining these two businesses Aldermore has the expertise and ﬁnancial backing to develop into a signiﬁcant force within the UK savings and business ﬁnance markets.
THE BIG INTERVIEW
Stephen Hester, Chief Executive of RBS, continues to face the daunting task of not only improving the reputation of his bank, but the industry as a whole. The banking sector has demonstrated strong proﬁtability recently. How would you characterise RBS’s performance in the ﬁrst six months of the year? Stephen Hester. I believe we are basically showing that we have been doing exactly what we said we would do. We’re rebuilding RBS. We’re restructuring the bank. Our goals are simple to do, in terms of articulation, harder of course to execute. They are there to serve our customers well and better, to make them strong again and to rebuild its commercial success to give all our shareholders, but in particular our taxpayer shareholders, the opportunity to profitably realise their investment in us. So all three of those jobs are making good progress according to our schedule. But of course we have much left to do. There are a raft of one-offs, but what’s the underlying story? Are you reassured by these Q2 results? SH. The underlying story for RBS is that our ongoing core businesses, the businesses that, if you like, represent the new RBS that is emerging, are strong and are getting stronger. That’s partly as the economy recovers, and it’s partly as the really very extensive management action we’ve had to take begins to take hold. You see that particularly in our retail and commercial businesses, where results are nicely up. Our investment banking business is more volatile, as all similar businesses. Market conditions have been more difficult in the second quarter, but I think these are just things that you can expect. However, offsetting the progress of our core business is the wind-down and eventual disappearance of the things that brought us down: the risk positions, the excess assets and businesses, the things we have to sell, mostly in our non-core division. And again, very good progress being made on that restructuring, on that reduction effort. Of course, as you say, there is all sorts of accounting volatility. We’re a complicated story. Until we’ve fi nished peeling back these extra layers of the onion and showing you the shiny new RBS beneath it – and that’s why we give such high levels of transparency – there’s actually a simple yet strong story emerging, but still some levels of complexity to finish removing.
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But proﬁt margins are rising. So does that mean that critics were right in saying that the banks were taking more from their customers? SH. I think what is very, very clear is that, even today, we are not yet making enough profit to justify shareholders’ investment in us or any other bank. Our return on equity is not yet on a sustainable basis where it needs to be. And so we need to do more on profits. And if we don’t, we won’t be stable, sustainable and able to serve our customers in the long run, particularly with all the extra capital and extra burdens that regulators are correctly applying to the banking industry. However, that is not the same as saying that we are profiteering. We are absolutely clear that our service to customers should be competitive, that the service levels should be good, that they should get a good deal. This is forefront in our minds and our efforts. We cannot be successful commercially if that’s not true. So of course like all businesses, like anything you buy, prices go up and down according to world markets. Our cost of money has gone up, so some of the price of loans has gone up in the context of lower interest rates. But we’re very clear. We’re open for business. We’re competitive. And we want to do more and more business with customers. And indeed the evidence in the first half is encouraging because our customer numbers are growing and there must be some reason for that. We must be doing something that our customers want. We can do it better. We will do it better. But so far I think we see progress. And so what are you expecting then from the second half? SH. The second half of the year, I think, will show a continuation of the key tasks that we’re doing, the run-down of our non-core, the reduction of risk positions, the restructuring of new RBS, the businesses that will take us forward. I hope some continued gains with our customers. All of these will be features of the second half. What are you going to do about performance-pay and bonuses? How do you expect to resolve that controversy when so many people outside are showing pay restraint?
THE BIG INTERVIEW 39
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THE BIG INTERVIEW
SH. I think that this is a very difficult subject, as we all know, and frankly I don’t have something differential to add to the debate. RBS, I believe, has been at the forefront of pay reform in banking. I would expect us to continue to take a responsible attitude in this area. But of course, as every business, we are bound by the need to be competitive and to have people who are with us, who are good, who can serve our customers. But let me just be clear on this whole debate about big bonuses and so on. More than 90 percent of our people, and all of the businesses that serve our high street customers in the UK and our business customers in the UK, these are not where the big bonuses are paid. These are where our people are working hard on comparable pay to the customers that they serve, and serving them very well. So I think the terms of this debate are really about the very global and specific area of investment banking, which is not that experienced by most of our customers in the UK. And there, of course, all of us are wrestling with this issue of the need to be globally competitive and the need to perform well to justify what we’re doing. Now you’ve said that the performance of the core retail and commercial businesses is encouraging, but that’s masking contrasting fortunes, isn’t it? SH. Of course, in any group, at any moment, there are contrasting fortunes, and by and large banks are a mirror of the economies they serve, so where we have economies that are recovering strongly, then our businesses are doing better, and vice versa. And we’ve shown in these results, for example, the property crisis which happened around the world, but more in some countries than others, is still causing property customers, and therefore us, difficulties with bad debts. Ireland in particular, as an example, but also here in the UK and in places in the United States. In other areas, pleasingly so far, unemployment has stabilised, both in the UK and the US. If that trend were to be sustained, we’re seeing some improvements in credit quality for our retail customers, which again is of course what we would all wish. So there is a mix, but in general I would say it’s a picture in our retail and commercial businesses of stronger economies, a stronger customer base, with of course exceptions, and therefore us being able to reflect that. How concerned are you in the slowdown in the global banking and markets business? How important is this to your future now? SH. All capital markets have been in a state of great nervousness in the last four months or so, and that has reduced activity levels and has impacted those businesses most sensitive to them, namely the investment banking businesses. In the same way that the quarter before they were unusually confident and those businesses were high. So you have to get used to volatility in that kind of business. You have similar things in basic banking business, but they take place over a longer period. But they’re also economically sensitive and do badly when the economy is in recession and well when it recovers. Th is is part of what
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a diversified group gives you, is the ability to absorb these ups and downs and carry on in a consistent way serving your customers. And what’s the current status of RBS Insurance? SH. One of the things, as you know, that we were disappointed about was having a whole list of disposals forced on us by a settlement with the European Union last year. However, what I’m pleased to announce is that we’ve made very good progress in getting those disposals done. And I think that the distractions of that process on our ability to move forward are being significantly reduced. The principal outstanding remaining disposal that we’ve undertaken to do is RBS Insurance. However, our plan has always been to wait until 2012 or 2013 to do that. We believe by that stage the business will be stronger. We’ll get a better price, probably through a flotation, maybe through other means. So right now we’re in the process of a big restructuring in the insurance business to make it more competitive, to recover from, if you like, some of the problems in the litigation and ‘no fee, no claim’ lawyer situation that has hit the motor insurance in the UK. As we get those things behind
Stephen Hester was brought in to run RBS after its government bailout, replacing Sir Fred Goodwin. He continues to face a daunting task, helping to rebuild the reputation of the Scottish bank, and sector as a whole.
THE BIG INTERVIEW 41
us, the business should strengthen into the period where that will be the final one of the mandated disposals. And where are you on your job losses programme? Are there more job cuts likely? SH. It is of course still a very prominent feature of business life that businesses everywhere around the world, in all industries, need to be competitive. There is constant pressure on us, not just commercial and stock market pressure, even pressure atmospherically in politics and the running of the economy, to be more and more competitive in the way we serve our customers. And that means we have to be efficient to keep our costs down, and sadly there is a job element to that. So what we’ve always said is that we will do these things responsibly. We will minimise the number of compulsory redundancies and we will talk to our people fi rst. We expect the great majority of what we have to do in our five-year plan to be out of the way in the fi rst half of the plan. We are well through that process. There will be more job losses to come, but I think that we’re really well advanced and we will do it as responsibly as we can in the remaining things left to do.
“We are absolutely clear that our service to customers should be competitive, that the service levels should be good, that they should get a good deal. This is forefront in our minds and our efforts”
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Do you understand why people are criticising the banks for not lending to businesses? What are you going to do about that? SH. I understand completely that, in times of economic stress, people worry more about money. Of course, some people in some businesses are more risky propositions. They are damaged themselves by the recession. Therefore their access to money, their riskiness as a borrower, changes. So, of course, I understand the level of worry there is on this subject. RBS is open for business. We want to support our customers. Of course we have a legal and a moral responsibility not to repeat reckless lending mistakes, not to deliberately lend to people who we think are not viable. But one way or another we are trying to support our customers. We are lending large amounts of money to them where they want it. Actually, more would prefer to save than to borrow, but we are doing it where it is needed. We have hotlines. We have appeal mechanisms. We are open for business. We want people to come to us, and we want to fi nd a way to get that money out, subject only to being responsible. Anecdotally, that is not the story that you hear from businesses. You hear statistics like one in three ﬁrms having their application for credit rejected. SH. Before the recession, and since, RBS says yes 17 times out of 20 to businesses who ask us for money. That is the statistic. We have GBP£45 billion of overdraft s available to small businesses in the UK that they are not using, that they could use if they wanted that extra money. So, statistically, I am very clear where we are. As in all recoveries from recession, people are tending to save more and pay back money, rather than borrow more. That
does not mean to say that I don’t recognise that there are not instances, even if they are not shown in the gross statistics, of stress, of difficulty. The recession hits everyone. It’s hit us, it’s hit our customers. And that causes difficult situations that you have to try to work through with your customers to help them, without in turn being irresponsible and returning to things that brought RBS down, of lending to the wrong people in the wrong way. Now you spoke about the regulatory debate earlier and its not clear what’s going to emerge from all of that. So are you happy with the direction that you are being taken? SH. I think we should divide the regulatory debate, complex as it is, into two buckets. There is the bucket that seeks to make banks safer, to learn the lessons of the crisis, to put in place more capital, more conservative liquidity arrangements, other things like that, so it is less likely for a bank to go bust in a recession. We’re supportive of those measures. We are a long way down those roads ourselves. There are uncertainties and details still to work out, but generally I think, good work in progress in the right direction. It will in the future be much less likely that banks topple over in a crisis than it was this last time, and that will certainly be true of RBS. The second bucket of regulatory discussion which is much less advanced, is: what do you do for the small residual possibility that despite being safer than before, a crisis could be bad enough to still topple over a bank? How do you ensure that if that happens, however unlikely, that governments don’t have to put their hands in their pockets again to support banks? Which is wrong, and we all agree that. But what we are now searching for is the answers to what is quite a complicated technical problem. There are a series of red herrings going around. There was absolutely no data from the crisis that suggests that you toppled over because of your size or shape. The data was that you toppled over because you were not managed well and because you were represented in countries that did not manage their economy very well. That’s the data. But fi nding a regulatory way through this, to allow banks to fail, for losses to be passed on to creditors rather than governments, is complex. It’s an ongoing debate and one that we all have to participate honestly and openly in. And to come back to your own funding, quantitative easing is now over and you’ve passed the EU’s stress test. Are you comfortable with your position? SH. RBS has dramatically improved its safety and solidity over the last 18 months since the crisis, partly under our own steam from the actions we’ve taken to reduce risk, partly thanks to government support, in terms of capital and some other things we’ve also done. But the job isn’t fi nished. So we have a glass which I think is more than half full in the safety area, but it’s not completely full. And over the course of the next couple of years, as we complete the job of winding down our risk profi le, we will get to the place where, once again, stand-
THE BIG INTERVIEW
alone RBS is one of the strongest banks in the world. And I think that’s necessary for our business. It’s what our customers want. And it’s good for the UK economy for all of the obvious reasons. And you’ve launched a big initiative around customer service. Is this just lip service? Or are you focusing on a key area here? SH. There has never been a truly successful business that could sustain that success without really serving customers well and giving customers something they want and value in an effective way. All the business success stories of history start with that proposition. And so for RBS to be successful, we can only do it if we serve our customers well. I think we already, on average, do that in our core businesses. We need to do it better and more consistently. And in the end, the difference in our success between hitting our true potential and just doing okay will be how well we really do in serving our customers and serving them better.
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And how far do you think you’ve gone in restoring the reputation of the bank? And do you still think that people are beginning to see you as a solution rather than a problem? SH. By and large, every day, millions of people deal with us because they want to. They have alternatives; they don’t pick them. We can do all of that better. The main area though, where we need to deal with our reputation, is what I’ll call our reputation as a company, rather than our reputation with our customers, in terms of service we give them, our reputation with politicians, with the media, with shareholders, all of the people who saw the weakness of this company, the way the share values went down, the risks around it. And that kind of reputation is only restored when we restore the reality to where it should be. We’re doing that well. People will naturally be encouraged by where we are, but need to see us finish the job. And as we finish the job, I believe that our reputation on those fronts too will improve.
“The difference in our success between hitting our true potential and just doing okay will be how well we really do in serving our customers and serving them better”
This interview was supplied by the RBS Multimedia Library.
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IT SECURITY 45
It’s all change at Standard Life. Group Information and Operations Director for the insurance ﬁrm, Christian Torkington, reveals how he is working to improve processes to ensure better integration and implementation of IT solutions across the board and improve innovation capability at the organisation.
hen Christian Torkington joined Edinburgh-based insurer Standard Life from rival RSA in March 2009, little did he know how busy he would be. In a newly created role as Group Information and Operations Director, his focus is on developing and implementing technology strategy, along with the processes that underpin the day-to-day operations of the firm. It became clear that he immediately needed to assess the current systems before he could make any improvements to them. “When I started I wanted to ensure that nothing was broken and perform some triage on the operations and technology,” says Torkington. “In that particular space, I have been looking at the control framework alongside plenty of best practice and controls. It was key that we looked at how the management information that we’re using to run our IT service delivery organisation was running well.” A part of this was looking at the cost data around these key functions. “I wanted to test costs against my knowledge and make sure that we’re operating at the right cost,” says Torkington. A lot of time was spent looking at project execution and taking actions to make sure that what was actually happening was as closely aligned to what Torkington would perceive as good practice as possible. He goes on to explains that getting out and about and seeing projects happen has allowed him to get an overall feel of exactly what is happening. “Meeting with people and getting into the data centre, getting out into the operation environments and down to the project rooms and seeing first-hand what’s happening, how things are working and listening to what people are seeing. I’ve been trying to perform a broad assessment of what the data says, what the people say, what it looks and feels like, particularly from the front line spectre.” Torkington claims that his former roles have played a huge part in his ability and management style in this brand new role. Indeed, if you look at his former roles, they’ve all been in the same space. As Chief Operating Officer at RSA he was charged with running sales, service, business change and IT and previously covered the same
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areas at Scottish Widows. Earlier in his career Torkington worked as a management consultant in programme and change management. “I’ve really been drawing on reference points from just about every point in my career,” he says. “And whether that’s looking back to my change management theory and applying that to Standard Life and using that as a framework to help me think about what we need to do here, or looking at the work I did with Barclays to develop digital propositions and online banking and how that might be relevant to us today. Of course I’m focused much more on the directive rather than customer service. We’re looking at what we’re doing here and how well we’re doing it, what customers seem to think about it and how effectively it runs.” By understanding where Standard Life is in terms of systems and direction it is possible for Torkington to drive the organisation forward and transform it into an efficient fi rm. His understanding of exactly where the company is means he won’t lose the good things that are
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“We’re looking at what we’re doing here and how well we’re doing it, what customers seem to think about it and how effectively it runs”
already in place and will realise where the changes need to take place. That said, Torkington is clear that he wants to execute change for the better. “In our preliminary results announcement this year, you’d see us talking about investing a lot in 2011, so we need to maximise our capacity to deliver change and, of course, we also need to make sure that what’s delivered is done so well and efficiently.” Torkington is spending a lot of time developing the overall operating model and enterprise architectures in order to get a much clearer view of the enterprise he’s trying to drive. With that template to make the best decisions it ensures that the investment portfolio is optimised. “We’ve got strong processes for control framework,” he says, “and that’s one of the things I’m trying to make sure we preserve and carry through into the future, but we also need to fit it to a different organisational structure and a different governance model.” Torkington has specifically been looking at project execution and has a programme looking at all sorts of different aspects of how we deliver projects from the basic operating model, governance, structure, processes, methods and tools, collecting data, estimating, release management and testing. “We’re working through all these aspects of the lifecycle to make sure we’re building a highly mature, capable and efficient set of processes, people and technology to deliver our biggest imperative. We’re aiming to have a period of investing in business, developing our distribution platforms, developing our propositions and we need the capacity to put that work through.” With all these changes afoot, surely Torkington is facing a lot of challenges? He replies that the one off capacity is probably the most testing challenge for the fi rm. “Clearly like any IT organisation we’d be geared up for a businessas-usual level of change. In terms of increasing our execution capability we need to manage that carefully and in a considered manner, which is exactly what we’re trying to do. “We’re not going to solve that problem by throwing monies at it. It’s about looking at all aspects of the pipeline, looking at where the bottlenecks are, looking at whether our tools and processes are sufficiently robust to support that big a capacity and making sure we’re moving that forward on a broad front. Th is is the biggest challenge for us without a doubt: it’s literally increasing our project capacity in a structured and measured way. We continue to deliver well, but we have to focus on additional delivery capacity.” Spend is obviously a key issue, particularly with regards to the current climate, which remains unstable. “In my experience, the best way to ensure you aren’t spending too much or too little, is to look at the business case spend,” says Torkington. Indeed, it makes sense to look at the clear business benefits and to outline the benefits when making an investment into any project, including IT. “I’m not a fan of monolithic, huge IT projects with great big bills attached to them and no clear benefit. So we very much drive our spend on a project and programme
IT SECURITY 47
basis by looking at the investment case, what it’s bringing to the organisation, what the benefits are and whether that balances with cost. “All of our projects go through that rigorous appraisal and approval process and that triggers our spend. What we then try to do of course, is to overlay the enterprise architecture operating model on that to make sure we’re executing this project in the right way and not just delivering, for example, a new proposition or a development in such a way that it’s moving us forward against our architectural agenda.” Looking at the key are areas of risk and compliance, Torkington goes on to explain that Standard Life is no different to other large fi nancial services organisations. He says that both risk and compliance are key to the entire company as a physical and operational issue. Torkington says that the company is investing in a wide range of programmes and initiatives to keep as up-to-date as possible across the piece. “The thing that strikes me about security is that you have to continuously manage it. It’s not the sort of area you can invest in and arrive at a steady state and then stand back from,” says Torkington. “There are always issues over whether it’s penetration testing and making sure digital capabilities are secure, whether it’s looking at data we have to share with other parties and our responsibility to make sure they’re handling that in a secure way. Even simple practices of looking at where the data is in our organisation, where the controls are, who has access and how we manage that, are important in keeping defences up.” Torkington believes that managing risk and compliance is an ongoing job. To tackle this he has recently restructured to pull together all the aspects of security, IT and continuity into one group under new leadership. “We’re really bearing down on that and trying to look at it in the whole,” he says, before going on to mention that he is investing in a range of programmes around strengthening access control, improving data retention content management capability as well as looking at proving online security. “It’s a rolling programme and an important part of our portfolio,” he adds. Moving on, Torkington explains that risk will never be entirely eliminated from the industry. “Risk is always present. And to be honest, risk is the fundamental basis of business. You only make money out of risk – there’s no money in risk-free activities,” says Torkington. “It’s about understanding your risk and having a clear appetite for different types of risk and driving the business to perform within those appetites.” Torkington goes on to say that compliance is part of the picture for him, saying that it is undoubtedly useful to have a compliance view of the world. “Compliance drives the data about how well we’re functioning within our risk appetites, but risk management is the fundamental management responsibility. It’s not something you can simply hand off to compliance and expect them to control, it’s something you have to be smart about and actively manage in your day-to-day job.
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Risk and compliance are key to standard life
Compliance drives the data about how well the company is functioning
“All compliance should do is sit there as a backstop to literally check and make sure that we’re doing what we’re supposed to do and what we said we’re going to do, but it’s primarily a management responsibility to manage that risk.” Looking forward, Torkington explains that he has several priorities over the next 18 months or so. He wants to ensure that the enterprise architecture is fully embedded into the firm and that there are stronger links between the enterprise architecture and the project solution architecture. “We’re confident that part of the machine’s working well,” he says, “and that we’re delivering a well organised model that builds towards our enterprise architecture. We’re also confident that we are strengthening our scalability and that we’re on top of managing our efficiency as we grow the business going forward and deliver our key strategic initiatives. ‘We’ve got a lot of change in the pipeline so we’re working hard on that and getting these things done to the time, quality and budget are really important. By restructuring the team we’ll be continuing our journey by developing and strengthening that talent and ensuring that we’re building a high performing organisation that’s clearly focused on what we need to and developing innovations.
Transformational IT The importance of transformational change in business has long been recognised, but it is only recently that IT has been at the forefront of transformational change. CIOs are therefore positioned to play an integral role in corporate plans as enterprises look at strategies to emerge from the recent recession. Gartner has identiﬁed that the key to playing this key role is knowing how to accomplish transformational change that fulﬁls the strategy of your fellow C-suite executives while keeping the business running. Gartner’s Top 10 Questions You Need to Ask When You Are in the Midst of a Strategic Change sets 10 guidelines and action items to give CIOs and other IT leaders the tools they need to lead the transformation of their enterprise. The 10 questions are broken down into three sets: contextual, implementation and organisational. Jorge Lopez, Vice President and distinguished analyst at Gartner, said in a prepared statement: “When organisations have to navigate a business transformation, the IT organisation is usually in the middle of it in some way, either as a key enabler or key constraint. CIOs rarely have a leadership position in a change of this scale, and they need to prepare more vigorously to ensure that IT does its job to advance strategic change”. http://www.cioinsight.com/c/a/Latest-News/Gartner-CIO-as-BusinessTransformation-Leader-180951/2/
Optimising operations Sandy Hawke reveals the importance of the right IT support.
he BigFix Unified Management Platform has radically changed the way that BGC Partners’ IT staff approach their daily operational tasks. Thanks to the real-time visibility and control of the BigFix solution, IT has saved money and time, and gets answers to the questions they have about their globally distributed environment – within minutes. BGC Partners is a leading global intermediary to the wholesale fi nancial markets, specialising in the brokering of a broad range of fi nancial products, including fi xed income securities, interest rate swaps, foreign exchange, equities, equity derivatives, credit derivatives, commodities, futures, structured products and other instruments. Before BigFix, BGC Partners’ IT staff struggled to gain certainty about all the workstations and servers in their environment; the IT team was looking for a solution that could give them a single, unified view into all aspects of their computing infrastructure. Licensing true-ups across the global network was simply not possible – leaving the IT department in the position of taking the vendor’s word for it, rather than having a reliable database of installed, used, and authorised soft ware.
“The ability to solve multiple challenges by leveraging a multipurpose agent, residing in a single console, was ultimately the compelling reason for BGC Partners to choose BigFix” When a soft ware vendor notified BGC Partners of their decision to eliminate support for one of their products, the IT staff turned to the BigFix unified management console to determine where the soft ware was installed. Within 20 minutes, the team was able to tell management exactly where the soft ware was installed – giving instant insight into the potential impact of the support termination. Inventory management via BigFix has provided a powerful way to reduce capital expenditures. The IT department uses BigFix to report when someone on the trading floor logs into a system, documenting via asset tags which systems are in use. Th is information populates an updated inventory database, allowing the team to redeploy from the in-house inventory, rather than purchasing a new system.
Initially, BGC planned to deploy BigFix Patch Management for their 5000 Windows workstations and 1500 servers, but soon extended functionality scope based on the power and flexibility of the BigFix Unified Management Platform. The deployment was straightforward and BigFix agents were quickly installed throughout the enterprise. Once the single, multi-purpose agent was installed on each system, the BGC team realised they could literally do anything on the systems they needed to do via the BigFix Unified Management console. In order to optimise service delivery to each of the remote sites, the team has installed a BigFix relay at each location. Additionally, a DMZ-based relay was installed at the main site in order to support and protect all roaming laptops. Network uptime is critical so IT staff members are appreciative of BigFix’s ability to throttle bandwidth usage dynamically in order to avoid performance impacts during maintenance windows. While BGC already had an existing patch management system in place, it wasn’t meeting their requirements for tracking and controlling systems over their highly distributed environment. When comparing BigFix to the incumbent tool and another they evaluated, Chris Marino, Global Director of IT Procurement at BGC Partners, says, “It’s not a fair fight. The ability to solve multiple challenges by leveraging a multi-purpose agent, residing in a single console, was ultimately the compelling reason for BGC Partners to choose BigFix. Additionally, the speed with which BigFix could enforce change was another big consideration for the decision”.
Sandy Hawke, Senior Director, Product Marketing at BigFix Inc., has over 12 years of information security experience in various technical sale, consulting and product marketing roles. Before joining BigFix, she held senior product marketing responsibilities at Blue Coat Systems, Vormetric, Nevis Networks and SenSage.
Case study Customer: BGC Partners Industry: Financial services Challenge: Before BigFix BGC Partners’ IT staff struggled to gain certainty about all the workstations and servers in their environment Solution: By providing a ‘single pane of glass’ perspective into the BGC global network of servers and workstations, BigFix has given IT staff reliable, up-to-the-minute information – information that can be used to reduce costs, simplify management and improve security Beneﬁts: Thanks to the real-time visibility and control of the BigFix solution, IT has saved money and time, and gets answers to the questions they have about their globally distributed environment
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Your greatest risk and asset Kensington’s Stephen Hoare discusses how simplifying the role of the employee increases employee compliance, increases protection levels and delivers compelling ROI.
ven the most comprehensive policies or most rigorous training programmes won’t automatically ensure employee compliance. Th is is especially true if employees are asked to change their behaviour or do something that they don’t understand. When it comes to employee compliance keeping it simple and logical is more than just common sense. Where behavioural change is required, especially when it comes to matters of security and reputation protection, organisations that provide explanation as to why the policy is in place and provide training and regularly remind employees of their responsibilities will be most rewarded. If an employee understands that the behaviour required of them is deemed necessary to protect their employers’ bottom line and ultimately their own job security they are likely to comply. Th is notion is supported by IDC who found that well implemented security policies reduce laptop theft by 85 percent. Organisations should ensure that the role of the employee is simplified. Th is is risk minimisation. It’s likely that you have an ID badge that is programmed with your access permissions. Th is is far simpler than handing each employee multiple keys.
Safer investment decisions Products and systems that offer the levels of protection demanded by you and your customers that are also easy to use are safer investments than alternatives that may offer a short-term saving but result in poor levels of compliance and ROI. As the world’s leading physical laptop security brand we’ve looked at how we can support our customers so they enjoy high compliance levels and ROI when they invest in our products. A laptop lock that is simple to use is far more likely to be used than one that is complicated. At Kensington, we have taken our ‘smart made simple’ brand promise to a whole new level by simplifying the fivestep process required to use existing laptop locks into one easy step, without compromising strength or protection. The benefit for organisations that specify laptop locks in their security policies is that the lock is simple for employees to use, removing any acceptable excuse to the employee who ignores a policy that expects laptop lock usage.
Smarter policies The right policy and approach to enforcement is as important as the right product solution. Th is is important because you should expect full compliance without disrupting your employee’s existing daily routines and
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productivity levels. The right policy will foster a culture where responsible behaviour is expected and where peers feel empowered to encourage others to comply with their organisation’s policies. The acid test of a policy is its effectiveness. Is it complied with? I use this logic relative to laptop security. It’s simpler to protect your organisation against the effects of laptop loss such as fines and lost productivity, disruption and reputation if you don’t lose them in the fi rst place. The most effective first line of defence against laptop loss is a laptop lock. The most effective laptop lock is one that is actually locked to a laptop. A common sense approach to security policies is supported by research analysts IDC, who found that organisations underestimate the cost of downtime by 31 percent. We’ve worked with them to provide a ‘cut and paste’ policy that can easily be adopted by organisations from any sector. The policy presents a common sense approach to laptop security in and out of the office that also provides a framework for your organisation to educate and remind employees of the importance of complying with policy. Employees don’t need to concern themselves with installing the latest anti-virus soft ware, IT departments do this for them. Issuing locks that are simpler to use and deploy is one less thing for your IT personnel to worry about. Issue the new ClickSafe locks and they may even sleep better. Download Kensington’s policy and learn more about the new ClickSafe locks at www.simplersafersmarter.com
Kensington’s Security Business Development Director, Stephen Hoare, has a deep understanding of the challenges that face organisations. He positions Kensington as a partner rather than a supplier, offering value-added services which help businesses with bespoke physical protection solutions, deployment and compliance measures unique to their requirements
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Facing down the
security attack In the battle with security fraudsters, banks increasingly have to pull rabbits out of hats.
By Sharon Stephenson
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s urban myths go, this one is a beauty: some time ago, a large African nation introduced a biometric element to the delivery of its welfare payments. Beneficiaries, so the story goes, were required to be fi ngerprinted and swipe their right index fi nger on an ATM machine every time they claimed their weekly payments. Human nature being what it is, some unscrupulous individuals decided a good way to defraud the system would be to murder people, cut off their right index fi ngers and use these to claim additional payments. Fact or fiction, this grisly story is a salutary tale of the lengths some people will go to subvert the system. And of the need for fi nancial institutions to stay several steps ahead the criminal fraternity when it comes to data security and fraud issues. It’s no secret that fi nancial institutions are great movers and repositories of sensitive and valuable data, which makes them an attractive target for criminals. According to soft ware company Symantec, fi nancial institutions are among the most frequently targeted industries and the severity of fraud is often greater as they are more likely to be a target for profit versus nuisance. Globally, there’s little doubt that fi nancial institutions are struggling to keep pace with the increasing frequency and severity of information security risks and online fraud. Indeed, security and fraud management is one of the top 10 strategic IT priorities identified worldwide by research company Financial Insights, while recent studies indicate that security-enhancement technologies, data warehousing and content/document management technologies are among the top investment priorities for European banks. It’s a sentiment shared by Allen Chilver, Senior Consultant - Advisory at PricewaterhouseCoopers (PwC) who says European fi nancial institutions’ data security faces attack on four fronts. “There’s the loss of data from staff or customers that creates a data protection breach, as well as the loss of customer identification credentials that facilitate unauthorised payments from customer accounts such as card and other channels including the internet and telephone banking,” says Allen. “Two additional threats are the loss of data that exposes a bank’s trading positions, which allows competitors to trade against them knowing what their trading positions are, and the loss of the bank’s own confidential data which may compromise its strategic plans.” The key issues that result from such data loss are often “depressingly mundane” rather than high tech, says Chilver, and include data leakage through insecure systems, often not the bank’s own, as well as data leakage because of dishonest staff, particularly in UK and overseas-based call centres where low-paid staff and high turnover can be an unfortunate combination. “We know that criminal gangs will actively place people working for them in call centres with the deliberate
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intent of retrieving confidential data. It’s becoming more prevalent and has put the focus onto staff recruitment screening techniques to target those issues.” Significant amounts of data can also be lost through an institution’s lax processes, such as inadequate waste disposal, transporting or careless handling of information. Of these, probably the most significant criminally fraudulent practices in terms of visible mitigation are card and internet fraud, otherwise known as ‘phishing’. Matia Grossi, Research Manager for Physical Security at Frost & Sullivan, says phishing involves trying to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication exchange. “Communications pretending to be from popular social websites, auction sites, online payment processors or IT administrators are commonly used to lure the unsuspecting public,” says Grossi. “Phishing is typically carried out by email and it often directs users to enter details at a fake website whose look and feel are almost identical to the legitimate one.” Or via the telephone where the caller asks for someone’s bank details and/or to verify personal identification numbers (PINs). “Despite banks continually telling customers never to give their details over the phone, they still do. One European bank recently conducted a fake trial where it rang customers and asked them for their PIN and something like 20 out of 100 people gave their details straight away.” Surprisingly, there is little difference between European nations when it comes to banking fraud. “Take the credit card area, for example, which is a global issue,” says Chilver. “Any bank anywhere could potentially fi nd itself in a position where its card data was being compromised because the point of compromise isn’t necessarily linked to the bank nor to the country in which the bank operates. In many cases, internet banking fraud is perpetrated overseas perhaps in Eastern Europe or in South East Asia.” One of the major strides made by banks in the past few years in the fight-back against payment fraud has been the introduction of chip and PIN technology. Chilver estimates this has reduced the incidence of such fraud from around 18 basis points of turnover in 2001 to 12 basis points in 2008. “Basically we’re talking about combating the physical counterfeiting of cards. It’s possible to skim, or illicitly take a copy of the magnetic stripe data on a card and transfer that onto a counterfeit card that can then be used at the point of sale. If you could also compromise the customer’s PIN, you could then use the card in an ATM. What chip and PIN technology has done is to introduce a much more sophisticated way for the card to prove that it’s genuine – ie data authentication.” There are two types of data authentication, Static Data Authentication (SDA) and Dynamic Data Authentication (DDA). The former uses chip data in the form of a digital
signature that allows the point of sale terminal or ATM to validate it using a technology called Public P Cryptography. With SDA, the signature is pre-calculated by the bank and written to the chip, so it is always the same and the counterfeiter can record it from a genuine card and play it back from a counterfeit card. The second, DDA, actually calculates a different digital signature each time, which makes it a much more powerful authentication mechanism. It is able to defeat any type of skimming attack because it can’t be predicted by the counterfeiter. Initially, most European-issued credit cards featured the static authentication method, mainly because of the time taken to personalise each card (it’s around eight times slower to produce a DDA card than an SDA card) and the cost of chips, which require an additional component to calculate the signature. However, the costs are coming down and Chilver says vendors such as Visa and MasterCard have already mandated their members to use DDA for all offl ine-capable cards issued after 01 January 2011. “It’s important, though, to recognise that chip and PIN isn’t a silver bullet. What it has done is to eliminate specific types of threat, but then the threat has simply shifted elsewhere, namely to card-not-present fraud which has expanded significantly since chip and PIN was implemented in the UK.” Likewise, in countries that don’t use this technology, namely the US, card skimming remains a very real threat. “The US doesn’t have chip and PIN technology and may not adopt it because of the sheer complexity of getting thousands of merchants, third-party processors and other stakeholders who don’t come under a single regulatory umbrella and who may not have any kind of fi nancial incentive to adopt this technology.” When it comes to delivering sensitive security information such as PINs and other credentials, mail is still the preferred channel for most fi nancial institutions. Th is, of course, leaves such information vulnerable to mail inter-
to achieve a relationship with the customer and communicate with them. The issue is how to achieve that other than through some kind of physical means of transfer.” Step on up, biometrics. Many banks have either dabbled in, or are enthusiastic users of, biometrics as a form of online security and although they’ve been around for some time, the big hitters remain fi ngerprint and voice recognition because of their ability to identify customers without requiring those customers to do too much. “Of course, there is the initialisation or registration process that requires a physical interaction between the customer and the bank. But once that is completed, having your voice or fi ngerprints on your credit card can support a virtual relationship that may extend long into the future.” Ditto voice authentication technology where customers can speak to an ATM, to a phone or to a teller without the need for verification of signatures. It is designed so that at any point, the relationship between the bank and its customers should be easier and less time consuming. However, both Chilver and Grossi say full implementation of voice authentication is still some way off. “There’s an awful lot of downstream technological changes that have to happened in order to translate this into reality,” says Grossi. “For example, you need technology in every branch as well as a considerable amount of back-end infrastructure to be able to record voices, turn them into a digital pattern and compare them to a voice on a database.” And then there’s the issue of speech/voice interpretation. Says Chilver: “You have to get this right before you use voice authentication. So I’d want to know that the bank understands and clearly interprets what I’m saying to them before I use voice authentication. Th is creates huge security issues for banks because they need to be very, very sure that they reliably authenticate genuine customers before a transaction takes place.” Likewise, when customers use internet capabilities to phone their banks (Voice Over Internet Protocols or VOIP),
“One European bank recently conducted a fake trial where it rang customers and asked them for their PIN and something like 20 out of 100 people gave their details straight away” cept. “Banks will normally use tamper evident documentation, but even then they are well aware of the threat of mail interception particularly with certain destinations such as shared accommodation which history tells us are particularly vulnerable to mail intercept.” Banking is, however, increasingly challenging mail as banks’ preferred channel to communicate statements, payments and servicing information to customers where, says Chilver, the security issue is serious enough for larger banks to deploy security units devoted full time to counter the threat. “The basic need is for some kind of trusted way
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it means that the call is not being routed through the traditional telephone exchange but through the Internet. “VOIP uses open internet protocols and was never designed with security in mind, so it presents all sorts of challenges for both banks and customers. All manner of interception and call spoofing techniques that are now happening over the internet which have serious consequences for how to manage these risks.” Another new generation technology aimed at making life easier for the customer and bank and harder for the fraudster is contact-less ATMs which can, for example, be
accessed via mobile phones. These could do away with the need for the customer to collect something physical from the bank because they’ll have their own mobile phone through which they can virtually deploy the necessary information and credentials to the customer. “Instead of inserting a card and tapping out a PIN you do the actual authentication using your mobile phone while you’re waiting in the queue waiting to withdraw cash. Then when you get to the front of the queue, instead of inserting a card all you do is tap your mobile phone on the contact-less pad on the ATM and it dispenses your cash.” Of course the drawback is the cost of technology for each ATM, which runs to around GBP£1000. But Chilver predicts that as the price per unit drops, touch-screen ATMs could go the way of Tyrannosaurus Rex. Contact-less cards are also the next big thing, and they are already being deployed by Barclays Bank in the UK.
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Any debit card you now get from Barclays has contact-less capability so that the user doesn’t physically have to insert it into a device in order to make a payment. They just have to tap a reader with the card and key in the pin. One security-based technology still in the nascent stage of development that has experts excited is DNA biometrics. According to Grossi, this has huge potential for large-scale applications in the next 15-20 years. “The integration of iris and retina recognition biometric systems and 2D and 3D face recognition systems are anticipated to gain widespread adoption in the next seven to 10 years with their low error rates. Multimodal biometrics such as fi ngerprint, face and iris are expected to become the standard biometric for high-end applications in government, border control and airport security by 2020. And the banking sector probably won’t be too much further behind…”
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The retention tipping point Simon Taylor asks if the retention of unstructured information is similar to waste management.
here has the individual human perspective gone on the way information is classified, segregated and stored for compliant retention, privacy and risk management? How then do we capture this understanding to ease the burden of information retention? In today’s world of multiple different types of communication, when faced with an inherent corporate information risk, how easy is it for an organisation to make the decision to just keep everything? Actually the answer is very easy and this approach isn’t as uncommon as you might think. The “default” position of keeping it all because “it’s the right thing to do” has strong parallels with other human challenges, including waste management. Th ink about how you manage your trash at home. Of course most still put everything in one trash bin vs. separation for recycling vs. shredding for privacy. We now know the downstream implications of this strategy; however, the question remains as to how long did it take us to wake up to the consequences of keeping everything in one place? In short the answer is very many years, but what made us change? It was only at the precipice, when countries were faced with exponential growth in waste leading to uncontrolled cost, environmental damage and a multitude of potential health-related civil law suits, did the tipping point occur and mass recycling become the acceptable norm. In short, we now need to improve the way unstructured information is retained or we could face similar if not more wide-ranging implications for the global information world. Modern thinking has us complying with retention policies by keeping everything. Th is simply won’t do. Retention needs to be applied though the classification of information at a granular level regardless of whether its nature is ascertained automatically or directed by an enduser. How else can you sort out what you need to retain and what you don’t and then segregate the information ‘waste’? The more classification rules we can model as policies for the alignment of retention the more the balance can shift from the end-user to automation, but this shouldn’t be prescriptive. Organisations also need to gradually evolve to the granular application of retention rather than the often catastrophic big bang approach that incurs risk.
So what can you use to do this? The answer to the information retention tipping point is fi nally here. The CommVault Simpana9 Information
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Governance Framework offers a unique answer by delivering a step-by-step approach that enables organisations to move steadily and measurably to unified information management. The CommVault Simpana soft ware includes a range of purpose-built information governance capabilities from a single technology platform. All data acquired by Simpana soft ware is deduplicated and content indexed using embedded technology that supports over 400 record types in over 77 languages. Embedded processes classify and redirect information both automatically and manually (via end-users) to promote the collection of records to specific retention policies with specific and seamless user or group access. Finally a real step-wise solution to better information governance is here without invasive technology, but instead enabled through capabilities that focus on accessing and retaining important information records.
Simon Taylor leads CommVault’s Information Management business focusing on solutions that cover information governance, ILM, eDiscovery and compliance. He has inﬂuenced the development of a range of solutions in data retention, archiving and enterprise search over the last 10 years, working for or with some of the leading companies in this ﬁeld.
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Asking all the right questions to protect yourself What questions does an organisation ask when a laptop is lost or stolen? More than you want to answer, so backup and encrypt. By Joseph Belsanti
eing told that one of your employees has lost their laptop can instantaneously wake you up to the reality that your data is not safe, and you just may have been compromised. Thoughts revolve around the data that resides on that drive, and if a current backup exists, or any backup at all. Next, concerns arise relating to what might happen if there is unauthorised access to the data and if it were to be used for wrongful purposes. The immediate questions asked are: Whose laptop has gone missing? And what data did they possess? Secondly, questions surrounding the restoration of the data through a backup are discussed in order to get the employee’s productivity back up to a desired level. Now the adventure begins. Was the laptop encrypted? Does disclosure of the loss of data need to occur and what would the repercussions be to the enterprise? Upon the loss of a notebook, a typical organisation asks the following questions: How did the notebook go missing, and is there anything we can do to stop it from happening again? Organisations now start to analyse their security practices and processes. They try to determine if they need to buy any soft ware or hardware to protect their data – such as encryption – and they look at reviewing their existing security measures. If the organisation subscribes to ISO 27000 standards, they now turn to ISO 27001 which formally defi nes the mandatory requirements for the overall management and control framework regarding an organisation’s security risks. They will also review their ISO 27002 standards, in relation to ISO 27001, to establish a code of practice and guidelines in protecting sensitive data within their enterprise. Was the notebook encrypted? Given the amount of attention that privacy and security regulations around the world have brought to data breaches, the above question is probably one of the fi rst questions to be asked. The reason for this question begins with the exemption clauses under most data breach notification conditions existing within privacy and security regulations. In most cases if you encrypt the media upon which the data resides in adherence to exemption clauses, then you will not be required to disclose a potentially embarrassing data loss. Is there any way to find out where that laptop is now? In some cases, organisations want to know if they can track the location of the missing laptop in question. They do so,
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not necessarily to recover the laptop, but to determine if there are any other measures that they need to take into consideration to further protect themselves. For example, did a recently fi red employee take the laptop home and is holding it ransom for severance? Did the contract worker who was in last month take a notebook? Did an employee steal it? Each one of these above conditions may provoke a different set of responses and measures that an organisation may want to execute in order to protect itself legally and the data that may be exposed.
Joseph Belsanti is the Vice President of Marketing at WinMagic Inc., a leading global provider of full-disk encryption solutions protecting data on laptops, USB thumb drives, and CD/DVDs. In addition to data security solutions, he has been marketing and selling in the ﬁelds of IP Address Management (IPAM), and E-services (CRM, E-procurement, Web Services and E-business).
What else can be done to the laptop now that it is not in our possession? Intel’s Anti-Theft Technology now enables some encryption ISV vendors to issue a poison pill to a laptop that has been identified as lost or stolen. Th is poison pill can be issued to a laptop whether or not it is connected to the internet/LAN and performs two primary functions. It disables the platform and performs an encryption data disable. The first function was intended as a theft deterrent mechanism. The second function further protects the sensitive data on the laptop. In this case, access to an encrypted laptop would be denied even if the individual were in possession of the correct credentials – password, smartcard, USB token, etc. With new security technologies including Intel’s AntiTheft Technology and self encrypting drives (SEDs), the ubiquitous protection of data through encryption will only be a matter of time before it is a normal practice, just like backing up data.
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An alternative strategy Gibu Mathew explains why a monitoring strategy that combines proactive monitoring across physical, virtual and cloud infrastructure is an ideal application performance management approach. only the web services, etc without showing how they are interconnected within the complex infrastructure. So when an application slowdown occurs, these tools might not be able to pinpoint the root cause of the problem as they do not have end-to-end visibility in the transaction. Moreover, the increasing proliferation of virtualisation and cloud applications has added another layer of complexity to application performance management. Most businesses are fi nding out that their conventional monitoring tools do not have the necessary operational intelligence for monitoring complex virtual or cloud infrastructure. Th is is because the traditional approach focuses too much on the physical infrastructure alone. Purchasing multiple performance management tools to monitor such different and constantly changing IT environments is not feasible either. These point tools introduce additional overhead, lack adequate integration and cannot perform in-depth application performance management.
A new strategy
oday’s businesses increasingly use soft ware applications that run in a wide variety of environments, everything from physical to virtual to cloud. As organisations look for ways to reduce costs, improve efficiency, and increase scalability, cloud computing and virtualisation are playing a vital part in their IT strategies. However, these new technologies also present new challenges for organisations in the areas of application monitoring and application performance.
Traditional NSM tools don’t work Traditionally, most organisations have gone for a silo-based approach for application performance management. However, as more organisations adopt and experience the advantages of virtualisation and cloud computing, they are realising that this model is no longer practical. Web-based applications are becoming the standard for both internal and external services. Most traditional tools monitor each component of an application or transaction individually, by picking up various segments of transactions without providing a unified view of the entire transaction flow. For example, the database tool tracks only the databases or the web services tool tracks
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Gibu Mathew is currently Product Manager, Application Performance Management Solutions, at ManageEngine.
So, how do you monitor application performance issues in a heterogeneous IT environment that is constantly evolving? What you need is a monitoring strategy that combines proactive monitoring of a hybrid set of applications and servers across physical, virtual and cloud environments. An ideal application performance management strategy should include deep dive application component monitoring spanning application servers, databases, servers, ERPs, middleware, web transactions, virtual machines, cloud services, etc. The IT team should have no difficulty in troubleshooting performance bottlenecks or tracking end-user experience from across the world. They need the right kind of end-to-end visibility to see what’s working and what’s not across their IT environments. Today’s IT managers are expected to understand how specific IT services are affecting business operations, so the organisation’s IT strategy should facilitate this to happen. The IT team must be able to troubleshoot problems quickly and effectively with minimal reliance on manual processes and guesswork. At the same time, the teams must be able to monitor compliance with service level agreements and ensure a high quality end-user experience. By re-inventing their application performance management strategy, IT departments can be confident their services meet business goals.
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José Manuel González-Páramo, Member of the Executive Board of the European Central Bank, shares the lessons that can be learned from the ﬁnancial crisis in terms of credit risk management.
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RISK MANAGEMENT 65
he European Central Bank (ECB) places great importance on the development of sound and effective risk management practices in the fi nancial industry. However, both central banks and private financial institutions continue to face great challenges collectively in managing risk. These challenges seem to persist, although they have been changing face. The high levels of uncertainty manifested in unprecedented levels of asset volatility in the years 2007-2009 emanated originally from liquidity shortages in the off-balance sheet management of highly complex assets. In late 2009 and 2010 we have again seen high levels of volatility, this time associated with concerns about the large fiscal imbalances in some EU Member States. In both phases of the crisis, fi nancial markets have reacted to the increasing fear that some market participants may fail to honour their obligations; they have, in otherwords experienced an increase in credit risk. Under the general concept of credit risk I would include both the risk of default of issuers of securities held in portfolios as well the counterparty risk faced in over-the-counter transactions.
Management of credit risk It is widely accepted (but not appropriately emphasised) that one of the causes of the deep fi nancial crisis witnessed since mid 2007 has been the deviation from well established principles in the management of risk (in particular credit risk) by fi nancial institutions. Common sense risk management practices such as “know your counterparties”, “invest only in products you understand”, “do not outsource credit risk management by relying exclusively on external credit assessments”, “do not rely exclusively on quantitative models, however sophisticated” have been abandoned. It is interesting to recall at this stage the work of the original Counterparty Risk Management Policy Group co-chaired by E. Gerald Corrigan and Stephen G. Th ieke which, as early as 1999, stressed that “better knowledge of one’s counterparty represents the foundation upon which the other pillars of risk management rest”. Re-establishing these principles in risk management practice is essential for the resilience of the fi nancial system. I would like to highlight in particular the trend witnessed in recent years for many market participants to exclusively rely on external assessments for the management of their credit risk. These assessments have often been provided by only a small number of specialised institutions (rating agencies). The critique of the role of rating agencies has become a recurring theme in all analysis of the current crisis. In addition to potential conflicts of interest embedded in their business models, rating agencies have faced questions on their methodology, in particular in the area of structured fi nance, and the lack of transparency in their activities. The ex-post assessment of the performance of their ratings in the last two years has raised serious concerns. At the same time the use of credit rating in legislation, regulations, and other supervisory policies is so widespread that I would agree with the Financial Stability Forum, which has questioned whether these policies unintentionally give credit ratings an official seal of approval and discourage investors from performing their own due diligence. Th is should certainly be one of the main concerns of regulatory authorities in the immediate future.
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How central banks address credit risk Central banks are unique as market participants because they do not face liquidity risk in their own currency. However, they are not immune to credit risk. Losses occurred because of a default of one of their counterparties or an issuer of a security they hold in their portfolio which can deplete their financial buffers. Although their financial survival does not depend in any vital way on such buffers, their perceived lack of financial resources could irrevocably damage their credibility in the market and thus their ability to implement monetary policy and safeguard financial stability. Furthermore, if a recapitalisation of the central bank by the government becomes ultimately necessary, it could jeopardise the independence of the monetary authority. In general, central bank risk management is considered conservative, so that overall it could be perceived that the development of an elaborate risk management framework is not really necessary. However, the central bank becomes an above average risk taker in a crisis situation – first of all by showing inertia in its risk management framework. There is thus some fundamental transformation taking place in the risk tolerance of the central bank as it continues operating in a financial crisis when other market participants have long adopted a very conservative approach. At a time when all risk measures (probabilities of default of collateral issuers and counterparties, correlations, expected loss, VaR-measures) have gone up dramatically and fi nancial institutions are cutting credit lines and increasing margin requirements in the interbank market, the central bank becomes the lender of last resort. In such a situation its risk taking increases considerably. Th is suggests that the management of the central bank’s risk exposure is even more important in a crisis and requires, at least then, a very carefully designed risk management framework.
Central banks do not face liquidity risk in their own currency
...but they are not immune to credit risk
Credit assessment in the Eurosystem The experience of the fi nancial crisis has led the Eurosystem to solidify the already elaborate credit risk assessment framework it uses in its credit operations. Let me now give you some more information on the way the Eurosystem handles credit risk assessment in the context of its own credit operations. Article 18.1 of the Statute of the ESCB requires that all credit operations conducted by the ECB and the National Central Banks (NCBs) should be based on adequate collateral. In particular all such collateral must meet high credit standards. The Eurosystem has defined an elaborate framework of credit assessment (the European Credit Assessment Framework – ECAF) to ensure that such standards are met. In the assessment of the credit standard of eligible assets, the Eurosystem takes into account credit assessment information from credit assessment systems belonging to different sources. Some of them are private, namely external credit assessment institutions (ECAIs), counterparties’ internal ratings based (IRB) systems and third-party providers’ rating tools (RTs). Others are public, namely the national central banks’ in-house credit assessment systems (ICASs). Additionally, in the assessment of the credit standard, the Eurosystem takes
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"Both central banks and private financial institutions continue to face great challenges in managing risks"
into account institutional criteria and features similar protection for the instrument holder such as guarantees. The performance of all credit assessment systems that are accepted by the Eurosystem is closely monitored. On an annual basis the observed default rate for the set of all eligible debtors assessed by a particular system is compared to the credit quality threshold set by the Eurosystem. This way, the results from credit assessments are comparable across systems and sources. With regard to the ECAI source, the Eurosystem does not automatically follow the assessments provided by a rating agency. First, any such assessment must be based on a public rating. Even then, the Eurosystem reserves the right to request any clarification that it considers necessary. In particular when it comes to asset-backed securities, a number of transparency requirements are imposed. Ratings must be explained in a publicly available credit rating report, namely a detailed pre-sale or new issue report, including inter alia, a comprehensive analysis of structural and legal aspects, a detailed collateral pool assessment, an analysis of the transaction participants, as well as an analysis of any other relevant particularities of a transaction. Moreover ECAIs must publish regular surveillance reports for asset-backed securities containing an update of the key transaction data (e.g. composition of the collateral pool, transaction participants, capital structure), as well as performance data. The need for better understanding of the underlying assets in securitised transactions was emphasised by the ECB when it launched a public consultation on loan-by-loan information requirements for asset-backed securities (ABSs) in the Eurosystem collateral framework. With this initiative, the ECB strives to promote an improvement of disclosure standards in securitisation markets from current levels. Such higher standards would contribute to avoiding the inadequate assessment of risks in the underlying asset pools of ABSs by investors and the exclusive dependence on thirdparty assessments that was at the core of the current crisis. Finally, I would like to emphasise one important element of our framework. Despite the fact that the Eurosystem uses ECAI ratings as one of its credit assessments, it still reserves the right to determine whether an asset fulfi ls the requirement for high credit standards on the basis of any information it may consider relevant from a risk management perspective. Therefore it should not come as a surprise that on May 3, 2010 the ECB decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the Greek government. This suspension was based on the positive assessment of the Governing Council of the ECB, in liaison with the European Commission and the International Monetary Fund of the Greek government’s economic and financial adjustment programme. The measure therefore acknowledged the strong commitment of the Greek government to fully implement the programme and was an example of the ability and will of the ECB to make an independent credit assessment.
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The connection between credit and liquidity risk While I have emphasised credit risk management, I would also like to highlight the more elusive concept of liquidity risk. The current fi nancial crisis has been triggered by the inability of some fi nancial institutions to fund some complex assets. It has been traditionally thought that while such a situation may put the institution at strain, it should be clearly distinguished from that of an insolvency. However, the experience of the last three years has showed that the distinction is far from simple. A prolonged period of liquidity difficulties may easily leave no other choice to the institution than an emergency sale of assets at significant losses and a subsequent depletion of its capital position. Therefore a liquidity problem, if it cannot be properly addressed – possibly by the intervention of the central bank – can easily lead to insolvency. In recognising the importance of liquidity risk and the systemic implications of a liquidity crisis, the Basel Committee issued a consultative document on an international framework for liquidity risk management, standards and monitoring in December 2009. The document put forward
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Better knowledge of one’s counterparts is the foundation of risk management
two liquidity risk standards and a set of tools for ongoing monitoring of liquidity risk exposures and information exchange among supervisors. The two standards, namely to capture a global minimum “liquidity coverage ratio”, which aims to capture liquidity risk in the short term by ensuring that banks hold sufficient high quality liquid assets to withstand an acute stress lasting one month; and to incentivise the longer term “net stable funding ratio”, which aims to incentivise banks to fund themselves using more stable sources on a structural basis by establishing a minimum acceptable amount of stable funding based on the liquidity characteristics of the fi nancial institution’s assets and activities over a one year time horizon. A discussion has been triggered and various concerns were voiced on the calibration of the standards, which in the view of some could generate significant negative repercussions for the real economy, for certain markets (such as the money market and interbank market) and for the business models of some banks. Central in this discussion is the question of the set of assets considered eligible for the short-term liquidity standard. It has been claimed that the proposal is not in line with the severe stress scenario that is assumed and that it could lead to concentration risk as well as higher cost for the assets that are not included. Furthermore, the design of the longer-term standard was questioned, as it was argued that a higher level of mismatch between assets and liabilities is necessary for banks to fulfi l their intermediation role in the economy. The ECB has a particular interest in the Basel Committee proposal on liquidity risk as it relates to the implementation of monetary policy and money market impacts, as well as possible consequences for the financial integration in the Euro area. Clearly the proposed liquidity standards address the major shortcomings identified by the fi nancial crisis in the area of liquidity risk by requiring banks to increase their holdings of liquid assets and to reduce their reliance on short-term volatile funding sources. Furthermore, enhancing the liquidity risk management of banks could have a positive impact on market confidence, thus reducing the volatility in money and capital markets. Still, the calibration of the proposed liquidity standards needs to be revisited to take into account the comments received during the public consultation and their impact on the banking sector, fi nancial markets and the overall economy. Finally, the establishment of an appropriate phase-in period that will allow banks to adjust their balance sheets without an undue impact on their operations or an increase in their reliance on central bank funding is warranted. Unfortunately, it appears that periods of “irrational exuberance” can lead us to forget well-established practices on how to prudently manage risks. Financial crises like the current one remind us of their importance. Also central banks have learned valuable lessons in their own risk management and have made steps towards solidifying their defences, while remaining faithful to their objectives of ensuring price stability while also safeguarding financial stability.
The ‘social network’ for investment banks? Single dealer platforms are the latest ‘big thing’ happening in investment banking. They are a virtual brand champion, providing not only an electronic trading platform but also insight into the bank’s trading ideas, its core brand values and aspirations. Graeme Harker from Rule Financial tackles your questions on this exciting new area.
market share in high volume markets such as foreign exchange. Banks saw that an electronic execution offering provided the ability to increase scale in order to support new additional ‘electronic only’ counterparts at negligible incremental cost. Th is provided market colour and had the potential to make a material difference to a bank’s market share. The initial success was a catalyst for many banks to align and cross-sell electronic distribution, co-branding into an overall e-business franchise that covered their ‘siloed’ SDP offerings and MDP presence. Additionally, with many banks undergoing the organisational change to align previously siloed Foreign Exchange (FX) and Fixed Income (FI) activities into a single Fixed Income Currency and Commodities (FICC) division, the market has seen a natural drive to break down infrastructure silos to establish single distribution coverage in these markets. As bank-side technology evolved, certainty of automatic execution became the norm rather than a differentiating factor. Offerings that reduce customer-side system fragmentation by offering more cohesive bank services and personalisation have become the prime differentiator in SDPs. Investment banks have continued to demonstrate a significant commitment to their SDPs and have invested heavily in a new generation of platforms despite the adverse market conditions. The stakes were raised dramatically in 2009, when a leading US investment bank launched the first example of a next generation SDP, designed with usability as a prime feature. However, the key benefit of the system was the inclusion of additional trade ideas, research, and key social networking features that the latest user-friendly and more intuitive consumer web applications have adopted. At fi rst glance the most obvious thing about this particular SDP is that it has more in common with the more well known applications such as Facebook and YouTube.
nk investment ba or aj m a om Paul fr y seeing are increasingl ) as s nk a B s: te wri (SDP aler platform their single de a major to market and el nn a ch re co ration a The new gene . rs e om st cu ith volume touch point w an increasing e ud cl in to m in a of SDPs see ion, delivered at rm fo in g in ad tr advantage of proprietary g competitive in id ov pr , at rm nity. I streamlined fo p the opportu as gr at th s nk ba looking to for investment nk and we are ba nt e m st ﬁts ve in work for an t are the bene ha w ; ng ri fe of ient u give on improve our cl t advice can yo ha w nd a P D S help n of adopting a ration SDP to ne ge t x ne a g atin efﬁciently cre ? the competition of ad e ah t ge us
Graeme Harker says: The proliferation of electronic trading has been a defi ning characteristic of the front office over the last 20 years. Driven by national exchanges centrally defi ning their e-trading infrastructures, the equities and exchange markets led the way. They exposed their order books for participants to trade electronically with their counterparts, and these became the first multi dealer platforms (MDPs). Multi dealer platforms such as TradeWeb and Bloomberg have been widely adopted, but only offer more commoditised products. An investment bank’s SDP is its own electronic trading platform; allowing institutional investors and hedge funds to trade a much wider range of products from a single market maker. The fi rst generation of SDPs generally focused on execution, as the fragmentation of bank offerings for different services was not a material problem in terms of customer uptake. The early adopters of SDP built a solid reputation by delivering a high degree of certainty of execution to the customer and allowed the banks to grow
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A next generation SDP designed with an enhanced user experience.
Graeme Harker has led the development of trading systems at Betfair, Morgan Stanley and UBS. He is currently Principal Consultant for SDP and User Experience Design at Rule Financial, a technology and business consulting company specialising in complex systems development for investment banks. www.ruleﬁnancial.com
From the trader’s perspective, these next generation SDPs allow the bank’s customers to ‘friend’ trade advisors, seek advice and view market insight about trading opportunities. These features help investors identify not just the best price, but also the most profitable investment opportunities. And just as the iPhone was a game-changer in the mobile market, largely because of its superior user interface design, the aforementioned US investment bank believes that its SDP platform will prove to be a game changer in capital markets for the same reason. How has this become possible? Technology has played a pivotal role. Unlike almost all systems that have gone before, the new SDPs are being built with a truly user-centric approach utilising rich internet application (RIA) technology.
What are RIA technologies? For a long time there appeared to be a trade-off between style and substance in the world of computing. The web offered the benefit of mass connectivity, but performance was slow compared with desktop applications. The emergence of RIA technologies has changed all that, with powerful applications now capable of being hosted solely on the web. Users can enjoy a combination of the best of the web (broad reach, instant deployment and cross-platform support); the best of the desktop (fast performance, im-
mediate feedback and greater directive features like drag and drop); and integrated communication such as audio, video and chat. The latest SDPs draw on all of these technical attributes to offer users a truly interactive experience. Moreover, users can choose which information they wish to retrieve regularly and can create a personal view. From a banks’ perspective, an important aspect of RIA technology is its ability to coexist with legacy back-end systems: banks can offer an integrated solution without a total technology renewal. Banks have learnt a great deal from consumer markets, which have successfully implemented RIAs to address business challenges and develop brand loyalty. The advantages of RIAs include; improved user experience, streamlining of complex tasks and (potentially) reduced transaction charges as tasks can be completed more efficiently. However, RIAs can be complex to develop, requiring specific skills to ensure the user-experience is at the forefront of the design process. The development process is more intricate than for HTML development and can take more time and effort to achieve the desired outcome. Any potential RIA project must be supported by a compelling business case. The potential to incur high costs is aggravated by a shortage of development talent: RIA business applications are being developed across many industries, so demand is likely to outstrip supply for the foreseeable future. Worse still, developing RIAs calls for comprehensive creative skills, therefore re-training existing developers is not always possible. Banks that are considering RIA projects must examine their capabilities very closely before committing to such a development.
What does the future hold? SDPs will continue to offer banks the opportunity to build long-term client relationships based on the traditional values of trust, loyalty and satisfaction, so will expand to offer additional asset classes in due course. Banks will continue to invest in their SDPs as a major marketing channel that increases client intimacy and builds e-loyalty. The whole SDP initiative is also significant when viewed in a wider context. It offers an insight into how the capital markets are managing their customers and building their systems. Automated trading platforms have exerted great pressure on investment banking margins. Th is pressure is exacerbated by the high costs of servicing customers. The Single Dealer Platform is a response to these new market dynamics: a vehicle that allows a bank to offer highly differentiated products at lower cost. The current generation of SDPs represent a magnificent union of business and technology. They establish the SDP as the perfect vehicle for both delivery of content and transaction execution. Th is combination is bound to attract new users and dissuade existing users from looking elsewhere. Th is is great news for those banks that have completed their SDP developments; as for the others, they face a steep learning curve. One day perhaps all systems will be built this way.
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The heart of the bank
Core banking has a critical place in ﬁnancial services as the heart of the bank. IDC’s Rachel Hunt outlines the role of core banking in relation to customer service.
s a system, core banking is undoubtedly the single most important element in the bank’s IT environment. While core banking systems have been in place for around 30 or 40 years, the technology evolution hasn’t changed much since this time and the systems are pretty much what they were when they were first implemented. These systems continue to work well, however core systems invariably come back into discussion
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because they are costly to maintain and improve upon. On average a bank will spend between 40 to 70 percent of its IT budget on core system maintenance each and every year, which leaves very little for the bank itself to innovate or to respond to the increasing regulatory burden. IDC’s 2009 EMEA Core Banking Deal Part 1 report makes a number of predictions for the future of the core banking market by looking at the market trends for the
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Upgrading your system Looking at what ﬁnancial institutions can do to implement or replace a core banking system, Hunt advises that a small institution should look to integrated core systems that are provided by a whole host of vendors and cover universal banking requirements. “I would say that smaller institutions need to investigate software-as-a-service models in terms of reducing CapEx and look towards an operational expenditure model. Certainly the pay-ondemand or pay-as-you-go models are interesting,” says Hunt. Larger institutions need to look at evolving towards a service-orientated framework and follow standardised deﬁnitions of what services should be. Looking at component solutions it is possible to ﬁnd out where the main business pain points are. “One of the issues for larger institutions is that core systems replacement is seen very much as an IT issue with little involvement from the business,” says Hunt. “Increasingly this is changing to see decisions made by the business. The end user of the core system needs to be involved right at the beginning of the selection – they’re the ones who should be driving the core system transformation, not the IT department, because they’re the ones who have a vision of what the bank is doing, what it needs to be doing and where the real bottlenecks and pain points are.”
95% of consumers chose their banks on quality of service
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previous year. Rachel Hunt, EMEA Research Director for IDC, explains that what was quite interesting from the report’s point of view is that while 2009 was a difficult year for many IT vendors, the number of deals was fairly level with regards to the previous year. One of the key reasons for this has been the number of mergers and acquisitions within the banking system, which has meant that many organisations have been required to replace or redesign their core systems. “If we look at the banking sector in general,” says Hunt, “service-orientated architecture is gaining in maturity, and the vendors are following suit and offering solutions, which are much more componentised and can scale up much quicker. “The analogy is that when you’re replacing a core system it’s like doing heart surgery whilst running a marathon; it’s very risky for banks to do rip and replace. It’s a complex and usually very long project,” she adds. What banks are currently looking for instead are the much smaller projects, which are a lot less resource and dollar hungry. Hunt says the report has thrown up the organisations that are focusing on their pain points and then rolling them out so they replace or transform their whole core system at the end of the project. Another interesting trend, says Hunt, is that new banks – in both the Middle East and Western Europe – are inputting brand new systems, leading to a lot of product innovation in the sector. “The majority of deals are being driven from emerging areas like the Middle East and Africa, but Metro Bank and Tesco Bank are also building brand new core systems.” So what is driving this change in core banking systems? Hunt believes that it is down to the customer. She sees that customer requirements have changed in a power shift that favours the customer as the decision maker. “In the olden days, you went to see your bank account manager and he told you about the products available and how to
access them. Today, you go to the bank and tell them how you want to do your banking,” explains Hunt. “Increasingly that pressure is difficult for banks to deal with because the customer wants more and more channels. Plus they want a personalised banking experience, they want to be able to see their data, they want to be able to personalise it.” Flexibility is certainly a key challenge for the future of the banking industry. Indeed, one element of introducing new channels or new products is that those products need to be introduced in a very flexible manner, particularly in the retail banking side. Dealing with the mass market, which increasingly wants a personalised approach, doesn’t really go hand in hand. “Banks are having to deal with a competitive environment where keeping profitable customers is becoming more and more difficult, where the differentiator is not going to be the product pricing,” explains Hunt. “It’s all about the level of satisfaction and the quality of service that’s given.” She goes on to explain that the FSA did a survey recently that found 95 percent of consumers choose their banks based on the quality of the service rather than on the pricing. Pricing will remain important. “Very dissatisfied customers are changing their banks. The rate is currently around eight percent across Europe, but that’s on the rise. Basically the customer is less and less loyal and similarly in a corporate banking world, the level of sophistication that corporates and treasurers want is much more granular, they want more control and more self-service. All these things are of course limited by your core system and how flexible it is and how cheap it is for you to introduce new products or services.” Even the quality of the service being offered goes back to the back-office core system. If it takes two weeks to approve a loan origination over the internet, you will not be looking at a very happy customer – if customers go on the internet, they don’t want to have to wait two weeks for a decision. All these sorts of competitive issues are linked back to some of the restrictions caused by the legacy systems. Indeed, Hunt believes that looking at the future of the banking space there will be a real shift in how banks are going to compete, particularly on the quality of service. Core system vendors need to be able to provide the tools for those banks to compete on that sort of quality and satisfaction level. Hunt explains that she is excited about the entrance of new banking competitors that are not banks. “Peer-topeer lending, with organisations like Zopa or Funding Circles who are not banking institutions but who are providing loans to consumers and small and medium businesses, is really changing the way that they interact and relate to their customers,” she says. “Now, the difficulty is that because they’re not banks, they’re not regulated so they don’t have to have such complicated reporting and infrastructures as the banks. But the banks do need to learn about the ways that these people are changing and the way they’re communicating and interacting with their customers.”
Growing in new markets Solutions enabling fast implementation and stabilisation, adequate functional coverage and proven guarantee an effective return on investment. By Luís Sant’Ana Pereira
equire fast implementation of a banking business model in Portuguese-speaking African countries, East Timor or Portugal, with extended and adequate functional coverage, compliance with existing regulations, guaranteed evolution of the solution and with adequate investments and support costs? There’s now a solution and it goes by the name of Promosoft : Banka. The Banka core system is a comprehensive and totally integrated platform for different banking business models: commercial banking for individuals and companies, investment banking, private banking and corporate banking. The functional coverage of the Banka core system meets most of the needs and requirements of banking institutions, including the business processes inherent to the operations of a bank. With regards to the management and administration of banking products and services, the Banka core system also provides a high level of compliance with standards, regulations and other existing legal provisions, specifically in those markets where Promosoft is present. The technical architecture of the Banka core system that supports the applications is optimised and up-todate relative to the characteristics and evolution of the i series platform. The applications and their incorporated
features are modular, allowing integration with other banking systems which include, for example, distribution and customer service channel solutions. Characteristics of the Banka core system such as reliability and robustness, which correspond to a reduced number of anomalies requiring intervention, are also relevant. These functional coverage and technical architecture characteristics are a result of the constant evolution of the Banka core system of Promosoft since 1992, which has enabled the incorporation of functional and technical best practice as recognised by clients and partners. A key milestone was the market release of the Banka 3G version a year ago which has since been adopted by several banks. Th is reinforced the conviction and capabilities that allow us to guarantee implementations in record time, thus preserving an essential characteristic of Promosoft and of the Banka core system, now known as Banka 3G. In addition to the extension of functional coverage, the release of the new Banka 3G version also allowed the inclusion of additional technical characteristics such as 24/7 availability and new licensing modalities, which includes the modality associated with the source code of the solution. Promosoft and the Banka core system are a leading market reference in the banking sector of Portuguesespeaking African countries, East Timor and Portugal. Indeed, more than 50 banks in three continents and seven countries have selected us as their information technology systems partner.
Luís Sant’Ana Pereira is the President and Chief Executive Ofﬁcer Promosoft
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CORE STRENGTH H
Banks need to get on the core banking highway – or be left behind, say experts. By Sharon Stephenson
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eard the one about the bank who chose not to upgrade its IT investment in core banking infrastructure? It incurred vast operational costs and inefficiencies, decreased its competitive advantage, irreparably damaged its flexibility and analytical capability, and saw thousands of customers switch to more technologically savvy competitors. It’s no laughing matter, says Peter Scott, Solutions Director for Retail Banking at Misys. “What really enables banks to build a lasting competitive advantage is their ability to continuously innovate, achieve differentiation and respond quickly to dynamic business challenges. There’s no doubt that an efficient and adaptive core banking solution is integral to the business strategy of a bank geared to meet the challenges of new-age banking,” says Scott who spearheaded Misys’ new generation core banking technology, BankFusion. What Scott is talking about are the services provided by a group of networked bank branches or, put simply, the depositing and lending of money to retail and small business customers via deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, internet banking and branches.
“Th is means that the deposits made are reflected immediately on the bank’s servers so the customer can withdraw the deposited money from any of the bank’s branches throughout the world.” Th is is in stark contrast to a few decades ago when it used to take at least a day for a transaction to reflect in the account because each branch had its local servers, and the data from the server in each branch was sent in batches to servers in the data centre only at the end of each day. But here’s the rub: many fi nancial institutions still operate ageing, unwieldy core technology systems – oft en built on mainframe technology – which are a throwback to the overnight batch-processing days. Not surprisingly, these systems are often woefully inadequate to meet the modern pressures of regulatory compliance, customer service and growing competition. “These pressures impact the management of effective processes to deliver good services and address regulatory compliance, as well as their ability to provide what we call a ‘single customer view’, i.e. to be able to see your entire relationship with that customer on one screen,” says Scott. The key to change, he adds, lies in centralising internal and external data and streamlining systems and processes to provide the necessary business agility that will
allow them to address the competitive environment they fi nd themselves in, but also allow regulatory compliance to take place. In topping up the core banking war chest, in other words. It’s estimated core banking consumes more than 12 percent of an average bank’s IT budget. Last year, US banks spent around US$8 billion on replacing or refreshing core banking systems. And similarly large-scale replacement continues apace across Europe, India, China and Asia/Pacific. And although it’s an essential fi x, it’s not an easy one. Scott likens changing core banking systems to conducting open-heart surgery whilst the patient is running a marathon. “It can be a very complex and lengthy process, particularly if IT systems are heavily siloed. Not to mention being expensive and disruptive to the business. Because it carries all these challenges at an operational level, you’ll fi nd that CIOs and CTOs really only want to implement change if they have to, because if they fail, the stakes are high.” Career limiting in fact, he adds, which could account for the numerous CIOs and CTOs around the world who failed to successfully implement core banking replacements and, unfortunately, got fi red. Hence the need for a process that reduces risk and costs and does it in the most effective way. “There are essentially two ways to tackle the issue of upgrading core banking applications. The fi rst is what we call ‘rip and replace’ – i.e. take out the old system and put in an entirely new one. Or, the option that is becoming increasingly popular, renovating the existing system.” The latter approach allows banks to actually amend some of their existing processes without having to take out what’s already there. It does this by basically opening up the new application into spaces of existing products and basically laying the new technology on top. By not “messing with what’s already there”, the strategy allows banks to keep running their existing offerings under the covers but at the same time to open up new business processes. Indeed, Misys believes so strongly in the value of this approach that it developed BankFusion, the world’s fi rst core banking solution to be commercialised in 14 years, which specialises in renovating applications. “Historically, business applications have all been parameterised and nobody wanted to build another parameterised solution. So we approached the issue from another direction: if all banking operations start with a process, it makes sense to build an application using a graphic user interface and design tool, which allows users to drag and drop components for business functionality, to build business process work flows and to therefore to build a core banking solution out of that.” As the ancient Greek historian Herodotus liked to say, “Great deeds are usually wrought at great risks”, and the payback from upgrading core banking technology can indeed be major rewards. In a presentation entitled Core Banking Systems Technology – the Packaged Solution Breakthrough, business
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consulting fi rm McKinsey & Co suggested there may be evidence to show a correlation between the performance of banks and whether they have successfully implemented new core banking technology. It’s something that Deutsche Bank knows all about. Th is year the German banking giant embarked upon a multi-year IT project to replace its core banking systems with an all encompassing-SAP (systems application process) platform. Deutsche Bank’s Chief Operating Officer, HermannJosef Lamberti, was quoted as saying the project intended to bring standardisation, flexibility and cost-efficiency to the bank’s IT through the use of modular tools within a service-oriented architecture (SOA) environment. “IT is a business driver and catalyst. It needs to be flexible, cost-efficient and scaleable to support business growth,” he says. “We are looking forward to shaping the industry and setting new standards to manage processes and services even more consistently and efficiently with a new core banking system.” Hermann-Josef admits the new set-up, which will use SAP soft ware and comprise partner data, payments, account management and savings applications, is also aimed at boosting profitability and accelerating time to market in rolling out new products and services to better serve the bank’s clients. On the other side of the globe, the Commonwealth Bank of Australia (CBA) has also dipped into its pocket for AUS$730 to upgrade its core banking technology in an initiative that’s estimated to take around four years to roll out. CBA Chief Information Officer Michael Harte hailed the new technology’s ability to run ‘real-time’ banking, and says replacing the bank’s 40-year-old legacy IT systems with a range of SAP applications will improve the bank’s customer service platform, infrastructure and business services, as well as providing significant operational benefits and cost savings. For Scott, whose career spans more than 20 years in corporate fi nance and banking, the key markets for future core banking technology upgrades, the so called ‘rip-and-replace markets’, are those in the world’s most populous nations. “The drivers for core banking replacement are probably strongest in those markets where there is underlying, organic growth from the demographic shift s taking place within countries such as China. Places where there are large unbanked populations who now want banking services, and that puts tremendous strain on some of the older legacy applications in those banking systems.” Nor has the global economic meltdown stemmed the tide of change. Banks from both emerging and more established markets are increasingly starting to recognise that in order to change and adapt quickly, large scale IT investment and realignment is required. The real joke, says Scott, will be on those who don’t clamber aboard the core banking technology train…
“Changing core banking systems is like doing open-heart surgery whilst the patient is running a marathon”
ASK THE EXPERT
The need for spreadsheet controls Spreadsheet control is rapidly emerging as a key area for both auditors and regulators to reduce business and compliance risks. By Sanjay Agrawal.
preadsheets play an integral part in the financial services industry and are central to most companies’ financial processes. As the use and complexity of spreadsheets continues to proliferate, so too does the awareness of increasing business and compliance risks associated with them. Studies of spreadsheets have consistently shown that 30-40 percent of all spreadsheets contain errors. Consequently, horror stories about business losses and risks resulting from spreadsheet error or fraud continue to emerge with surprising regularity. These range from financial losses, loss of stock value, loss of reputation and/or market share, vulnerability to fraud, regulatory fines and penalties for non-compliance. The UK£3.6 billion loss at Société Générale, one of the world’s leading banks, and a US$691 million trading loss at Allied Irish Bank are just two examples of bank losses due to the use of uncontrolled spreadsheets. The need for a Spreadsheet Governance, Risk and Control (GRC) framework in financial services first received serious attention after the passage of the Sarbanes-Oxley Act of 2002. Recently, regulations such as Solvency II, Basel III, the Model Audit Rule and the overall regulatory climate continue to ratchet up the focus on spreadsheet controls. For example, the Solvency II regulation and its use of the Quantitative Impact Study 5 (QIS5) spreadsheet brings spreadsheets front and centre in ensuring that companies have an adequate Spreadsheet GRC framework in place to ensure data integrity. In June 2010, the Institute of Internal Auditors released a Global Technology Audit Guide for “Auditing User-development Applications”. Hence, spreadsheet controls are increasingly in the minds of senior management and audit management committees. In CIMCON’s experience, it is not uncommon for a large, global financial services firm to have well over a million spreadsheets. Hence, where does one begin to implement a spreadsheet control framework? Based on its years of experience, CIMCON has developed the following spreadsheet lifecycle methodology and enabling technology to mitigate spreadsheet risk.
Step 2: Spreadsheet analysis and error detection. The next step is to perform a detailed analysis of the high-risk spreadsheets and check for errors. CIMCON’s XLAudit soft ware provides highly visual diagnostic and documentation tools to identify errors, inconsistencies or broken links.
Sanjay Agrawal is a Director at CIMCON Software, Inc., a recognised market leader and top ranked ﬁrm in spreadsheet controls and management. Over 230 companies around the world use CIMCON’s spreadsheet controls and compliance technology to reduce spreadsheet risks.
Step 3: Control framework. With the high risk spreadsheets remediated, a controls framework can now be implemented. CIMCON’S SOX-XL soft ware provides a flexible control platform with minimal or no end-user impact. Th is includes cell level audit trails, security, versioning and fi le comparisons to speed spreadsheet reviews and approvals. The above methodology and tools have been developed as a result of CIMCON Soft ware’s 12 years of experience and pioneering work in the area of spreadsheet controls and management. CIMCON is a recognised market leader with consistently top rankings from analysts, customers, consultants and industry experts. Spreadsheet controls are fast becoming mainstream for all the reasons described above and the realisation that it’s a small price to pay for the convenience of using spreadsheets. For more information on the state of spreadsheet management, please visit www.spreadsheetcontrols.org, a thought leadership portal maintained by CIMCON Soft ware.
Step 1: Perform spreadsheet inventory and risk assessment. The first step to taking control of spreadsheets is to quantify the problem by creating a centralised inventory estate. CIMCON’s XLRisk soft ware can automatically create this inventory while categorising all spreadsheets as high, medium or low risk.
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The predictive side of analytics Business intelligence has been a priority for those in the ďŹ nancial industry for years due to its ability to offer insights into operational performance as well as improve and analyse decision-making skills. David Potterton, gives an insight into where this key business tool is heading.
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he fi nancial industry faces a whole host of challenges, from strict governing regulations to demanding customers. Banks need strategies to develop and maintain secure internal processes and systems, ensure transparency and make sound decisions. One analyst fi rm has found that most organisations do not have the processes and business tools in place. It predicts that by 2012, more than 35 percent of the top 5000 global companies will regularly fail to make insightful decisions and significant changes in their businesses and markets. However, there is light at the end of the tunnel. An IDC report released earlier this year predicts that the take-up of business intelligence in 2010 will see doubledigit growth this year, with European spending increasing by 40 percent over 2009â€™s figures. Statistics show that around a third of fi rms on the continent are looking to significantly ramp up their outlay on business intelligence tools, with the fi nancial services sector especially keen to ramp up investment as a result of the large quantities of data that this sector continually deals with. David Potterton, Vice President for Global Research at IDC Financial Insights, explains that business intel-
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ligence is used effectively in two key areas of fi nancial services. First and foremost in the governance, risk and compliance category: looking at those aspects of analytics that are key to managing risk as well as within asset liability management particularly focusing on capital adequacy. Second, it is used to analyse consumer preferences and profitability: looking at the preferences around consumer channels and products that are being utilised to drive better decision-making from those analytics to deliver customer value. “The advantage of using business intelligence in financial services is that if you do it right, you’re in a better position to understand what is happening internally in your organisation and externally with your customers. Overall this will make you a more efficient organisation,” explains Potterton. It also puts you in a better position to survive any issues that happen in the marketplace. “Certainly when it comes to risk and compliance, it can provide greater transparency and put you in better stead with the regulators, which everybody wants,” he continues. “On the consumer side, it’s really about understanding that if you do it right, you are better able to understand the drivers of your profitability as an institution.” With so many elements negatively impacting the earnings of fi nancial institutions, these drivers of profitability are now more crucial than ever to the future of the organisation. By making better decisions, it is possible to drive more profitable products and services to the client base and focus on the solutions that consumers value the most.
Best practice In terms of ensuring you employ best practice when choosing and deploying a business intelligence solution, Potterton advises that it is crucial to start the process by looking across the entire enterprise, doing a risk assessment and then gradual supplementing business intelligence in the key areas that would genuinely benefit from the introduction of intelligence. “While you should start with the areas of greatest need, it’s really important that you start to drive business intelligence across the enterprise and for that you need a road map in place and a plan on how to deploy it effectively,” says Potterton. On the consumer side, he explains, a similar plan should be implemented. By starting in a specific key area it is possible to plan out the key steps to rolling it out gradually across the enterprise. “Start on the lending side or on regular DDA services and slowly look to roll it out to other areas over time,” says Potterton. Another key to remember is that business intelligence and analytics should be looked at both from a past tense perspective, as well as a predictive side. In other words moving away from data for data’s sake and looking at what the data means and the possibility of making better decisions based on this predictive side of the analytics. It’s the decision that it enables versus the data that it supplies. “Th is is really the key to business intelligence,” says Potterton. “Any time that you can use these tools to enable better decisions, that’s really where the value resides.”
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By 2012, more than 35 percent of the top 5000 global companies will regularly fail to make changes in their business and markets
David Potterton, Vice President for Global Research for IDC Financial Insights, explains that the challenges facing business intelligence in the ﬁnancial services industry are mainly around utilising the infrastructure for the entire organisation as opposed to keeping it in silos. “You’ve got various data repositories – or various versions of the truth we like to say. Being able to manage that is not easy. Integration is the key challenge from an enterprise perspective.”
“While its necessary to look at trends over time, the real key is what it means for the future and how do I change my behaviour or asset liability mix or customer mix to get maximum value? That’s really where the major benefits are going to be found.” Potterton goes on to explain that he is seeing more and more development on this side of business intelligence. “Solution providers understand the key is having data integration without multiple silos. They also see the importance of the predictive side of analytics in making more informed decisions. Half the battle is won when institutions understand that’s the path they should take.” Indeed, Potterton believes that the market is really warming up and will see spend across the board. He explains that it will also be interesting to see how far business intelligence solutions will extend to alternative delivery mechanisms such as soft ware as a service (SaaS) and also cloud, for example. “I defi nitely believe that as we move forward that business intelligence solutions will move to these delivery channels in addition to being brought in house. Regardless of the model, however, we are sure to see business intelligence solutions deployed increasingly in the fi nancial services space.”
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Barclays’ Mark Logsdon is on the frontline in the bank’s fight against internal and external threats to its allimportant data. It’s a war Barclays is winning, but Logsdon says he won’t allow complacency to catch the bank off guard – ”not even for a millisecond”.
Any information loss at a bank can escalate into a serious incident and a loss of customer conﬁdence. Does the myriad of threats to data make you slightly paranoid or keep you awake at night? Mark Logsdon. I’m always a reasonable sleeper so the threats don’t keep me awake. However, we need to be on our toes collectively and understand the risks that are out there and ensure we’ve got sufficient controls to manage the risks accordingly. We’ve got a great team that help us do that and this helps me sleep a little easier, although one is never complacent, not even for a millisecond. We continue to monitor the threats so that we hopefully don’t get caught out. There is a whole [response] team here who are able to instantly respond to an incident. They are constantly monitoring systems and events as we speak and use some sophisticated programmes around fraud detection and prevention. As the bank’s Head of Information Risk Management, what are the main challenges you face at Barclays when tackling the issue of information security? ML. Dear old Willie Sutton (American bank robber and gangster during the Great Depression) was once asked why he robbed all the banks that he did and his response was ‘Because that’s where all the money is, stupid’. I think that’s still the case today. We are naturally a target because we’ve got money that people are going to seek to steal. That said, we’ve still got a lot of people’s personal data and it’s important to us that having been entrusted with that data by our clients, that we protect it in a manner entirely appropriate to make sure that it’s not lost. The traditional electronic scams like phishing and now social engineering have been around for a while just the same as con men, fraudsters and tricksters have been. What I call old fashioned crime is still committed today but people are more tempted to do it electronically. And there is still the problem of disgruntled insiders although instances of that are rare. One important things is to ensure that we do have secure technologies and that we have great processes around them because if there’s a weakness in the process it can circumvent all that great technology and the controls. We also spend an awful lot of time making sure that people are aware of the risks that we potentially face, and that they know how to respond and deal with them, should they either suspect or spot something. So we have a huge awareness campaign in place that helps them to understand the risks and what they should do accordingly. When you mention threats to people’s personal bank information, people may think of external attacks from ‘hackers’ but data loss is more likely to come from within. How do you protect against these risks? ML. The particular risk of data loss has always been with us; it’s not a new risk. If one thinks about it, letters have always gone missing in the post. The file in your filing cabinet – we’ve always lost them. And there has always been the risk of the fax machine where someone inadvertently punches in a wrong digit and the document gets sent to the wrong number. So there has always been that case for a genuine mistake or a momentary lapse of concentration and I don’t think it is any different today. The difference now is that there is more chance to lose data quicker; one can keep an awful lot information on a memory stick as opposed to in a fi le.
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How do you combat it? ML. We have some good technologies that help us to control things and make sure that in cases where colleagues have got access to some sensitive data they can’t just simply plug a USB stick in and download it all from their laptop or desktop. It comes back to awareness of the issues. Mistakes will always happen and there always will be that momentary lapse of concentration. We all have them. We didn’t mean to send an email, but, unfortunately, we did. With those colleagues around particular sensitive areas of the bank, those with privileged access, there are further controls to ensure what they’re doing is appropriate, that monitoring tools are there and that they’re backed up with good HR-type policies. It’s about good technologies, good processes and good people management. I don’t think there’s anything new in that. I think that the danger is that there’s just a focus on one of those things, technology. And the other risk is that people don’t join the three things up, and they happen a little bit in isolation and are not joined up to manage the risk appropriately. Our job here is to ensure that with information risk management we look at all kinds of information in whatever form it resides, be it in people, hard copy or electronic and that we try and join all these things up. And there is no patch for stupidity, as the saying goes within IT security circles. ML. That is an old quote from [ex-hacker] Kevin Mitnick. I think there is merit in it but I prefer to call it a momentary lapse in concentration. At Barclays we employ bright, committed people who, given the right information at the right time, will make the right decisions. Our job is to give them that information so when they do happen to have that momentary lapse of concentration, which hopefully is very rare, at least they know what to do next to try and minimise what happens next. The public sector has seen its fair share of spectacular data losses. How do you get staff to appreciate the value of data and educate them on correct procedures? ML. Let’s be clear, I’m not saying this has happened in Barclays but people with good intentions send documents from A to B but with no thought about what happens if they go missing in the post. They are not aware that they might need to encrypt the documents. The reason they did not follow the correct process might be because it was so cumbersome and so inhibitive that it prohibited the business from doing what it was seeking to do. In my view, there has got be a balance of pragmatism against the need for control. In some cases, the need for control wins but users will find a way around it if they can. As I said, a lot of the time it comes down to genuine mistakes. For instance, how many times do we see the phone left outside somebody’s household address? It contains people’s names and addresses, right? It comes down to user education; they often don’t know they are supposed to put these things on an encrypted disk, use a double envelope of whatever it might be. They don’t understand what is expected of them in this day and age
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and make an honest mistake. While the technology and processes might be right, do the people understand what is expected of them?
Above: Mark Logsdon
”We employ bright committed people who, given the right information at the right time will make the right decisions”
How do you deal with staff mobility and work being carried out on laptops, smartphones and now tablets, 24/7 globally? ML. Staff mobility presents us with magnificent opportunities for ways of working. Sure, sometimes there are challenges around the way we do things, but we have to manage those challenges in a pragmatic way which enables a business to meet and realise some of the opportunities mobility allows. It is about a risk-based approach because for some people in some jobs it may not be appropriate for them to have remote access in an internet café. For other people in other parts of the business, it may be because the information they’ve got access to isn’t particularly sensitive at all. So we need to manage it appropriately but not in a way that stops the business from realising the opportunities. We have a big push at the moment exploring the use of iPads but we need to manage it in an appropriate way because it may be right for some staff to use them and others to stick with a desktop. It needs to be managed accordingly without saying to people, ‘You can’t have that or you can’t have that’. It’s about risk managing the process. Data losses can also occur when operations are outsourced. How do you approach this to ensure information doesn’t fall into the wrong hands? ML. Th is is a third-party risk and we share this concern. More recently, we have offered some awareness material, free of charge, to third parties looking after our data so they are aware of what we expect of them. Th is isn’t aimed at the
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large companies but more towards the SMEs who haven’t necessarily got the resources to spend on that sort of stuff. It’s also targeted at the people on the ground handling our data. We mandate that high and medium-risk suppliers are properly trained and it has proven to be hugely successful. The myriad of consultants and contractors that are constantly working with us and provide an invaluable service have an account on the network just like I have too. So you need to understand what sorts of third parties you are talking about because the risk profi le might be different and the controls you put around them as a consequence might change as well. With regard to what information they have access to, we have a segregation tool that allows us to make that call. We put the suppliers into high, medium and low risk categories and the controls we put into place around this reflect the risk potential they pose to us. Of course, we back this up with a performance review to ensure they are doing the right things. We’ll go back at a later stage and say, ‘You said you’re doing X, but can you prove it to us?’ What key trends do you foresee in information risk management over the next few years? Where will the threats come from? ML. The traditional threats will stay the same – fraudsters, organised criminals and insiders – and these threats will remain constant. Another is around consumerisation and the plethora of devices people are wanting to bring into the organisaton and use, which creates some interesting challenges. The one that interests me, going forward, is around identity and people accessing networks. If you think about it, we all have multiple identities. I just wonder how this can be sustained so we might have to look at that.
Barclays at a glance Barclays is a major global ﬁnancial services provider engaged in retail banking, credit cards, corporate banking, investment banking, wealth management and investment management services with an international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs nearly 147,000 people. Barclays moves, lends, invests and protects money for more than 48 million customers and clients worldwide. Structure Barclays is made up of two ‘clusters’: Global Retail Banking, and Corporate and Investment Banking and Wealth Management, each of which has a number of business units. The third major area of the business is Group Centre, which comprises the support functions. Leadership Barclays Group Chairman is Marcus Agius, and the Group Chief Executive is John Varley. They are supported by Barclays Executive Committee and the Board of Directors. Global presence Barclays Group headquarters is sin London, UK, but they have operations all over the world, with products and services to meet the needs of customers and clients in local markets.
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Doing it the aap3 way Rod Jackson discusses how the company has prospered during the last three years despite adverse economic conditions in the industry.
What are some of the key decisions you have taken to support your success? RJ. Approximately three years ago we consolidated our product offerings into three core solution groups, recruitment, engineering and business solutions. More recently we have further consolidated these into a single focused product-based portfolio sharing common objectives, all underpinned by our resourcing expertise. Another key decision was to re-brand the company from Preferred International to aap3 (all about people, process and productivity), giving us a more easily recognised brand with clarity of purpose in our name. We have also taken some strategic decisions on how we grow the company targeting 25 percent of our growth through organic growth and the rest through strategic acquisitions. In the last three years we penetrated the US market by acquiring a managed service company in San Jose, and nearer home we consolidated our leading position as a recruitment business by acquiring our original parent company Preferred RS.
What has made aap3 successful in the past three years, as the market has been suppressed and the economy slowing? Rod Jackson. At aap3 we have tried to do a few things well, having a very clear strategy that is constantly communicated to our employees. In addition we have maintained a diversified but interrelated portfolio of product and service offerings that have balanced each other out in the changing economic conditions. Our business strategy has been focused around ‘Core v Context’ both as a business enabler and a go-to market strategy. We help our customers understand the contextual work they undertake to support their business, and we make this our core, which allows them to devote more resources to their core tasks. We have lived within our means, keeping a tight rein on fi nance, whilst looking at low areas of return for disinvestment and continuing to invest in the more profitable activities. Our commitment to the community is reinforced through our comprehensive CSR programme, which has helped us maintain strong loyalty in our workforce partners and customers. In addition we are 100 percent dedicated to total quality across the company through industry-recognised accreditations.
“Insanity is doing the same thing over and expecting a different result”
What is your strategy and ambitions for aap3 over the next one to three years? RJ. To continue developing our business model, adding more products and support capability to our solution set in areas such as hosting, soft ware as a service and support packages for the small to mid-markets. I also envisage a strong push in the US and APAC. What do you see as the major barriers to your continued growth and success as a company? RJ. The biggest barrier has to be the uncertainty in the global economy. Whilst it is possible to mitigate for some of this, all business is susceptible to the prevailing economic conditions of the markets they operate in. The second barrier is cash flow. As a company grows it burns a lot of cash and this must be diligently managed. If you had to give one piece of advice to your peers in the industry what would it be? RJ. Stay focused on your mission, and keep communicating to your employees partners and customers. Remember my favourite quote: “Insanity is doing the same thing over and expecting a different result”. Rod Jackson joined aap3 in January 2008 as President & CEO. Prior to this, Jackson was at Cisco Systems as VP & CIO EMEA, had 17 years with Intel as Intel Online Services Director and commenced his IT career at Raychem. He trained as a commercial banker with Lloyds PLC.
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Can the private cloud be used for real-time analytics? Challenges and solutions on the road to achieving beneﬁts of the cloud for complex business applications. By Adi Paz
he promise of the private cloud is tremendous. The idea of accessing resources, information, and soft ware – on demand – through an inhouse virtualised infrastructure is alluring: it offers the scalability, resource management, utilisation and time-to-market of the public cloud, but without relinquishing control, security and payments to an outside service provider. The quandary arises with the realisation that the main benefits of the private cloud are usually limited to web applications rather than mission-critical applications the enterprise most depends on, such as analytics. Web applications are relatively simple, with each application running on a single server, and even multiple applications running on one server. Financial services companies today must manage an increasing portfolio of applications that require higher throughput and lower latency – such as VaR calculations, P&L, reconciliation, and more. Analytics processes are much more complex than simple web applications and present unique challenges: analytics apps work on terabytes of data, from various sources and in multiple formats; the same data often needs to be available to different analytics processes, leading to competition for resources. Additionally, the location of the data vs location of the process is often a factor, complicating system and resource management; the need to gain meaningful information from the vast data streams in real-time is becoming increasingly mandatory, and running complex algorithms on vast amounts of data is computation-intensive. To handle the vast compute power needed to run complex analytical processes, many companies invest in extensive grid-based data centres. A computing grid enables dividing analytics process into batches, and running each batch on multiple resources in parallel, which reduces processing time from days to hours and even minutes. But compute grids are expensive, and therefore only available to organisations with considerable spend power. More importantly, the grid – based on traditional tier-based architecture with a data-store tier – does not provide all the performance necessary to handle the teradata/real-time challenge. It does not make the data easily available for applications to consistently utilise in realtime, nor does it provide the resource management required by complex applications. So while the grid reduces processing time of Excel-based reports, for example, it cannot handle ongoing and increasing data feeds from
“Financial services enterprises have a soloution for real-time, complex analytics applications”
multiple sources and convert them to multiple reports for multiple users. Another challenge computing grids cannot resolve is that enterprises cannot know in advance exactly the amount of compute resources that will be needed, for how many processes, and for how long – nor is it fi nancially practical to provision an infrastructure on an ongoing basis to handle maximum needs that arise only at peak times. If the system needs to scale even more to handle more applications or ever-increasing data flows, the cost factor becomes even more critical. Hence, while the private cloud solves the resource allocation problem better and less expensively than the traditional grid, it doesn’t provide the additional capabilities required by analytics applications, including manag-
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Adi Paz is GigaSpaces’ Executive Vice President, Marketing and Business Development, responsible for developing and communicating strategy and managing the company’s strategic alliances and go-tomarket activities.
ing more data in less time, running more applications on fewer resources (increased utilisation), shrinking/growing the required infrastructure in accordance with actual needs (dynamic scaling), enabling any single application to run on multiple resources (multi-tenancy), simplifying provisioning, operations and management and maintaining reliability (redundancy), performance levels and such business concerns as securit, and compliance all at no increased cost, or even actually reducing current cost levels (reduced TCO). In summary, cloud computing can help reduce the cost of hardware, but current systems are not geared to handle complex applications. Compute grids enable processing complex calculations, but are expensive and cannot scale to actual needs, or handle the growing data challenge. So most fi nancial enterprises still face technology barriers to achieving the promised benefits of the private cloud, particularly in regard to analytics applications. In-Memory Application Platform = Cloud-Enabled Application Platform Imagine that you could put all your data – terabytes of it – in-memory. What if you could manage your resources to have exactly the resources you need at any given time? What if you could run any application – no matter how complex – on multiple resources, so that your processing is sped up and your investment in IT infrastructure drops? What would that enable you to accomplish in your data centre? It would enable you to run any type of analysis, no matter how resource-intensive, it would enable you to run as many of these processes as needed and to deliver real-time reports to as many people as need them within the organisation. It would also enable the cost-effective expansion of your arsenal of business-critical processes at all levels of the enterprise. GigaSpaces Technologies is a pioneer in developing in-memory infrastructure designed from the ground up to handle high-volume, high-performance, highavailability applications where large data sets are a key application characteristic, and where data integrity
cannot be compromised. Exactly the requirements for running fi nancial services analytics applications. Because GigaSpaces has full integration with various cloud management mechanisms, the GigaSpaces eXtreme Application Platform (XAP) is uniquely geared to leverage a private cloud infrastructure for these memory and dataconsuming applications. GigaSpaces provides an end-to-end solution for the entire set of requirements – functional, scalability, provisioning and load-balancing – in a single platform that runs real-time, event-driven analytics in-memory close to the data and uses standard programming models that ensures interoperability, enables re-use of existing assets, shortens time-to-service and offers built-in multi-tenancy support. Multiple analytics processes can run on a shared infrastructure, with strict isolation, as if each were running on a dedicated resource. The result is that you no longer need to just imagine running your calculations on your organisation’s private cloud. Now, fi nancial services enterprises have a solution for real-time, complex analytics applications with an absolute need for data integrity – all while saving on IT resources and investment, as compared to current solutions that offer far less performance. In-Memory Application Platform + High-Capacity Hardware = Cloud-in-a-Box Even if you recognise the benefits of running complex applications on the private cloud, you might be thinking, ‘That’s all well and good, but I don’t have a private cloud set up in my data centre’. You might be concerned with the cost and effort required to set it up and worried about fitting all the parts together – the hosting, the hardware and the platform on which your applications run. To help enterprises overcome this obstacle, GigaSpaces has developed a joint solution with Cisco to provide a single integrated system that unites computing, networking, storage access and virtualisation. The GigaSpaces platform can run directly on the Cisco Unified Computing System (UCS) hardware, with no intermediary hypervisor or operating system. What this provides is essentially a Private-Cloud-in-a-Box – just connect the ‘metal’, and it is already a cloud. No set-up, configuration, or expensive investment of time or money is required. In addition to the simplicity the GigaSpaces/Cisco solution brings to adopting and maintaining a private cloud, the integration also takes utilisation to the next level. Cisco UCS offers a large number of cores and extensive memory capacity designed to support parallel processing and offer the improved performance and increased efficiency of the next-gen data centre. The multitenancy and memory capacity of the Cisco UCS, coupled with the complete GigaSpaces in-memory stack, enables processing all the terabytes of data and complex, missioncritical applications the enterprise might require. The overall result: massive reduction in data centre footprint and significant improvement in performance and scale of computational workloads. For more information: www.gigaspaces.com/cloud
Has hype hurt the cloud? Cloud computing still generates plenty of interest, but that interest remains stuck in an ever-revolving debate of doubt and concern. So if the cloud landscape is to ever fully mature, what more should cloud providers be doing to convince the industry of its worth? FST investigates.
verblown, overexcited, exaggerated and extreme – hype phrases that rarely infi ltrate fi nancial service technology’s carefully crafted perimeter of suspicion and risk aversion. IT experts working within this field shy away from mind-blowing adjectives and extreme superlatives. They are naturally risk-averse, careful and considered individuals who cringe at the merest hint of hyperbole. But at the same time, they are inquisitive, intelligent and under increasing pressure to perform, to do more with less and to further support the business goals of their organisations. Hence, when a new industry trend comes along that promises all this and more, they take notice, but are wary of the ‘and more’ part. Cloud computing has been the number one source of hype hoopla throughout the industry for the past couple of years. Introduced as the solution to all CIOs’ concerns, the cloud landscape was meant to transform the ICT industry. It was going to improve systems, cut costs and make
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data more efficient, easier to store and access, and easier to scale. But here we are, on the cusp of 2011 and still the familiar concerns persist: “Is it secure?” “How does it work?” “Will it work for my business?” “Does it actually add any value to my key business metrics?” In an industry as fast-paced and technically savvy as fi nancial services, are the cloud’s stuttering adoption rates a cause for concern? Or does the fact that – even in an industry as famously safetyconscious, decisive and unadventurous as this – cloud computing is still being deliberated over again and again hint at something positive for the technology? Is there a future for cloud computing in the fi nancial services industry, or has the hype put a dampener on the cloud’s buzz? It’s an interesting topic for which there are few easy answers. Here we present five steps the cloud computing industry could undertake in order to gain the trust and support of the technology executives working within the fi nance industry.
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Sort out security
Cloud security remains the number one concern. Clearly, the subject of security has been the biggest barrier to cloud adoption in the ﬁnancial sector. Figures from the Eighth Annual Global Information Security Survey conducted by PricewaterhouseCoopers and CSO Online show that 62 percent of the 12,847 global businesses they surveyed still have “little to no conﬁdence” in their ability to secure assets they put in the cloud. “It is clear that a number of CIOs and IT executives within the ﬁnancial industry are pushing back against the cloud,” says Malcolm Eylott, Senior Vice President and Global Head of Operations and Technology at TD Bank Financial Group. “The issue of general security is a concern for everybody, and until that is cleared up there will always be this necessary discussion.” Len Johnson, Senior Vice President and IT infrastructure Manager at RBS North America, agrees. “The biggest concern we have with the cloud right now is security. In a private cloud environment I think security is pretty good, but it is the public cloud sphere where we still face issues,” says Johnson. “Losing data is always a major concern, but losing data across the cloud landscape means losing it in somebody else’s environment, which is completely unthinkable for people working in the ﬁnancial sector.”
Define what the cloud is
There is still a great deal of misunderstanding around the cloud. Figuring out what cloud computing actually is has been a continuous challenge for everyone working in the IT sector. Actually working out how to then leverage the cloud to one’s own end has proved even more troublesome, and it is this confusion and misunderstanding that is hindering the cloud’s wider adoption in the ﬁnancial technology industry. “Unlike a natural cloud, the cloud computing landscape hasn’t ﬂoated away,” says Hong Loh, Chief Architect at Legg Mason. “It has been around for two or three years and it is still stuck in limbo. So it is like an unnatural phenomenon. What does the industry want with it? It has remained a buzzword because of this misunderstanding, and this conﬂict between the demand for the cloud and the confusion about its value.” Eylott agrees that the way the cloud has been portrayed has deepened both the debate and the confusion around its true value to the ﬁnancial industry. “Approaching the cloud through third parties can appear to be very, very risky,” says Eylott. “Adopting something like a public, outsourced cloud is not really that different to data centre optimisation or server optimisation – something that most ﬁrms have been doing for years. The only difference being you have got somebody else managing your data for you, but you are no longer in control of the data centres and servers.”
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Differentiate the cloud from other technologies
The cloud has to compete with virtualisation software and strategies. Cloud computing can be inclusive of virtualisation, but it can also be implemented and extrapolated as two different processes. Both help to deliver optimised resources, scalability and on-demand utilisation, but virtualisation can be maintained and managed completely within a company’s own enterprise ﬁrewall. Does such competition hinder the cloud’s growth? “At RBS, we have just completed a very aggressive section on virtualisation,” says Johnson. “I have a target to virtualise 60 percent of the servers at 60 percent of our workstations. This programme is driven by cost and recoverability issues. We have gone down the virtualisation route rather than the cloudcomputing route because of the ability to move a virtual machine from one environment to another, to replicate it quickly. So if you have a failure on one system you can easily move it over to another, replicate it and be moving again.” “Is cloud computing about sharing service and utilities and hardware and software?” asks Loh. “If it is, then true virtualisation technology enables that; it makes hardware sharing easier. Is this what the industry wants?”
4 Cloud computing: the numbers that count • In 1997, NetCentric attempted to patent the term ‘cloud computing’ but abandoned this idea two years later. • A survey of 1800 IT professionals found that only 10 percent plan to use cloud computing for mission-critical IT services. • 45 percent of those surveyed say the risks outweigh the beneﬁts. • Yankee Group reports that 75 percent of enterprises are allocating no more than a third of their 2010 IT budgets to the cloud. • IDC forecasts public cloud computing will be a US$33.5 billion industry.
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Provide a more managed service space Cloud as a utility could represent the future of the industry. Whether used as an analogy or as the reality, if the cloud computing landscape could re-engineer for itself a place in the utility ﬁeld of businesses then its future adoption rates could increase. The analogy goes that homes and business, do not have their own electricity generators and instead rely on an external provider for electricity. This provider responds to their demands for service and scales accordingly. Swap ‘electricity’ for ‘hosted services’ and you have cloud computing. “The vendors of cloud computing technology are looking to provide a utility-type service, almost like your power and your telephone service that you can easily buy without thinking too hard,” says Loh. “This is what the vendors want, but is this necessarily what the customer needs? Electricity works this way because it is a dumb thing. You plug it in and it works. Phone services work in a similar manner. But to expect everybody to shift their application to a cloud is unrealistic because the ﬁrst step to sharing is being able to give up your data centre and move it into a core location. “However, if you can move your information into a managed service space where things like email, instant messaging and collaborative software can be hosted, then this type of value-added service is where the cloud computing landscape can really thrive.”
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Be patient Cloud concerns will disappear, but it will take time. As security issues are overcome and the true value of what cloud computing can bring to the industry is realised, the majority of the concerns that surround this technology will fade from view. Cloud computing is still a relatively new phenomenon, and one that has warranted plenty of thought and consideration throughout the industry in just a short period of time. As IT experts begin to gain a better understanding of how to leverage this technology, the cloud computing landscape will become increasingly demystiﬁed. “Grid computing is a classic example of how cloud computing can be leveraged for us,” explains Johnson. “It can slide into the cloud and you can then pull all the processor capabilities you want out of it. You could basically meter it up and down, as you need it. As we become more comfortable with this model, I think all of our fears and concerns will disappear. It is just like when PCs ﬁrst hit the streets. Nobody thought they were going to amount to anything, but now we have got to the point where they are second nature for everyone. Technology always ﬁnds a way to mature if the interest is there, and that is what I think is going to happen with the cloud.”
Top 10: Reasons cloud computing deployments fail
accurately judge the viability of the service you are signing up for.
1. Failing to deﬁne success: Setting unrealistic expectations is the number one reason that organisations have trouble with cloud computing. If you don’t set concrete, realistic goals, don’t be surprised when the cloud doesn’t meet your expectations.
7. Failure to manage and monitor applications: If your application performs poorly, your customers will blame you, not your cloud provider. Ensure you have the proper performance management and monitoring tools in place and you’ll have a better chance of catching those problems.
2. Failing to update computing concepts: If everything is off-site, how do you know the level of over capacity you actually have? Failover, backups and redundancy were easier to visualise in the on-premise computing world, but the whole concept of data being in a speciﬁc place is challenged by cloud computing. 3. Failing to hold service providers accountable: Organisations can easily lose one or two percent of revenues when mission-critical services go down, even for a short amount of time. When that happens, it’s important to hold the service provider accountable. 4. Failing to hold yourself accountable: Even if you have a solid SLA that has provisions for remediation, that doesn’t mean you are off the hook if something goes wrong. 5. Failing to scrutinise vendors: While it’s a pretty safe bet that Google, Amazon and IBM will be around in the years to come, you can’t say the same about numerous cloud computing start-ups. In 2009, Coghead, for example, ran out of capital and gave customers a few short weeks to ﬁnd new homes for their data. 6. Failing to understand the service supply chain: Even if your cloud provider is stable, do you know how stable their service providers are? It’s important to understand the entire service supply chain in order to
8. Failing to understand ﬁnancial realities: While the cloud may be cheaper than in-house IT, ﬁnancial visibility into IT systems is tricky and as such the answers of related budgets are fuzzy at best. With cloud computing those costs are painfully clear. 9. Failing to understand the legal complexities of the cloud: When you outsource computing resources, your business, no matter how small, may have opened itself up to the legal risks of a much bigger company. You may have to comply with laws from different jurisdictions, and you may face different liabilities, depending on where your data resides. 10. Failing to get off the sidelines: Finally, the biggest reason cloud deployments fail is because they don’t get started in the ﬁrst place. Too many organisations fret about issues that are not all that different from the ones they have in their own data centres. Outages, security breaches and compliance are all general IT challenges, not cloud-speciﬁc ones. Source: itmanagement.earthweb.com
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Your voice is your password Scott Wickware reveals why the ‘spoken token’ could pre-empt the end of passwords and PINS.
raud has always been a problem for the fi nancial services industry. Fraud losses on UK credit and debit cards alone totalled GBP£440m last year. Despite persistent efforts to raise consumer awareness of the risk of fraud, many still claim the responsibility lies fi rmly with fi nancial organisations to provide more stringent levels of protection. Either way, fraud is costing banks money and causing their customers anxiety. However, by using automated voice authentication to fight fraud, financial organisations can actually save money and make identification and verification more convenient for the customer. According to the centre for economic and business research, automated voice authentication could save UK fi nancial services companies GBP£472m per year. Although chip and PIN has reduced the occurrence of fraud, most banks still see between a five to 10 percent identification and verification failure rate with their existing systems. PINs and passwords are themselves easily compromised through intentional theft, user apathy and shoulder surfi ng. Organisations need to keep abreast of technology advances to ensure they stay one step ahead of the criminals. We’ve seen significant investment in voice authentication in recent years, which uses voice biometric technology to prove the customer is who they say they are based on the unique characteristics of their voice. It is particularly advanced in Canada, Australia and the US and is becoming increasingly used in the UK. Peoples’ voices are unique, just like their fi nger prints. Voice authentication analyses voice samples to extract key characteristics of a person’s voice based on, for example, their vocal tract length and shape, their pitch and speaking rate. Th is set of characteristics, taken together, is called a voice print. When a genuine customer enrols with a system, a voice sample is collected and a voice print extracted and stored for future use. When the caller speaks to the organisation again, a second voice sample is collected and compared to the stored voice print. Th is comparison generates a confidence score as to whether the voice matches the existing voice print – the caller is either accepted, and gains access to the system, or rejected as a poor match. Voice authentication is now state-of-the-art with a high accuracy rate – it is even capable of accommodating changes in a person’s voice as a result of a cold or ageing. As a voice print is almost impossible to impersonate, it is infi nitely more secure than a credit card or PIN. It is also the only biometric that can be verified remotely, making it the most convenient biometric to use.
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Furthermore, automated voice authentication is quicker than traditional methods, so banks save time and money, while improving the customer experience. It is less invasive for the customer as it removes the need for lengthy and unpopular interrogation by call centre agents. A more precise and automated identification and verification process will allow organisations to offer new automated services, previously only available via agents. These include personalised caller menus (such as “Your account balance is GBP£650.00, and your last deposit was recorded yesterday, can I help you with anything else?”). Automation of riskier transactions that require stronger security, such as a change of address, is also possible. Combined, these applications lead to a better and more secure user experience and happier customers. However, like all security processes, voice authentication is best used in conjunction with a second factor: something a user has (e.g. credit card, mobile phone) and/or something a user knows (e.g. postal code, secret date). While customers are increasingly nervous about fraud, they will shy away from systems that are cumbersome or time consuming, leaving them and the bank exposed. Not only is voice authentication user friendly, it offers a highly effective, affordable and convenient solution to security issues, making it a candidate for widespread adoption. Its prevalence could pre-empt the end of passwords and PINs, giving rise to a ubiquitous “spoken token”.
As Vice President of Enterprise and Mobility, EMEA Scott Wickware, is responsible for all aspects of Nuance’s pre-sales and marketing activities for Enterprise and Mobility in (EMEA). He joined Nuance from Real Networks where he was VP, Product Management, EMEA. Wickware spent 17 years at Nortel Networks where he held various technical, management and executive positions.
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Innovative thinking Sergei Mednov, Head of Information Technology at Russia’s Alfa-Bank, is responsible for the development of IT strategy. He talks exclusively to FST about the role of innovation and where the sector is heading. In your opinion, what are the key challenges currently facing the IT department in ﬁnancial services? What are doing about these challenges at Alfa-Bank? Sergei Mednov. We are facing a changing situation in the banking landscape. The classical way of banking is developing, and we are seeing that the way people want to buy and use banking products will be really different in the next few years, Within a decade most of the activities will have moved towards e-channels or mobile channels. As a result of this, classical banking networks will be used in a different way. People will not reject classical banking networks fully, but they will simply use them as a reference point without the support that we see right now. What’s most important is that new players are coming into the market and these players are coming from a different direction. The alternative settlement systems like PayPal, for example, are changing the landscape of the classical products from the banking side. Other players are coming from the retail market and we see a big collabora-
tion from banks and other retailers. As a personal leader this will defi nitely affect the mass market and it will take a lot of customers from the classical bank market as well. The third players in the landscape as I see it are the mobile operators and I suppose that this is the most challenging part of the new banking or new banking products landscape in the future. If operators can make all the settlements and transactions it is more important that they know about us much more and as a result they know about the clients much more than the banks know about their clients because they know how we move across the globe, where we are at this moment, the conversations, the spend on data and all this stuff and they can simply substitute the banks in terms of pre-approved loans or other fi nancial services. My guess is that banks should see this and take this as an advantage to collaborate with all three of these players: the alternative settlement systems, retailers and mobile operators. And the banks that are more or less successful in that will survive. In principle the losers will disappear, not in the near future, but sometime in the long-term future. Alfa-Bank is recognised as one of the best internet banking services providers. What speciﬁc challenges does internet banking present? SM. If I talk about Russia the internet bank has less penetration than the classical situation in western Europe and there are a few reasons for that. First of all, because banking is a young industry here – just 20 years old – and second, internet coverage is not as high as it could be in other western Europe countries and as a result we still have a big opportunity of organic growth in this sector. In terms of maturity the internet products are still behind most of the leaders of the global market. At Alfa Bank we simply provide the classical products like payments, utility payments, loan management or deposit management. We are one of the key players in Russia and we are the most active in internet banking right now with about a 50 percent mobile banking penetration rate within our customer base. We don’t think this is enough so we are trying to collaborate with alternative players in the banking market. We are building a gateway between the e-wallet providers here and our banks’ internet customers, for example, so that customers can use e-wallets and the bank accounts simultaneously so they don’t know where the money is but they use it as they want, they can take money from the e-wallet or they can take money from the account using the e-wallet. We are trying to fi nd something that is atypical for the market right now and we see big potential in developing internet and e-wallet services. So you are continuing to work towards new services. What part would you say innovation play in IT at AlfaBank? SM. At the board level we see IT as a key advantage. From a strategy point of view, and from the point of view of how
we articulate this, it is intuitive for the Russian market. Government banks are keen on the social responsibility or the funding or coverage of the whole country but we see that our key priority to survive is to have the right positioning. Alfa-Bank is the biggest private bank in Russia – we are number four/five in the market – but the government banks are always in front of us because they historically have the cheap funding and government support and that is not easy competition. The only way for us to win is to simply be faster, smarter, and offer better service for our customers, that’s the only strategy. Because we view IT as our advantage we see that we have to spend heavily in IT, not just because we would like to spend money, but because we would like to be the leader in the market. It is always about innovation. Two months ago, for example, we launched our first iPhone application for the Russian banking market. It was a really successful exercise because we got 50,000 new customers. The iPhone is really popular here, particularly in the big cities, and as a result we use this case to promote Alfa. Not like the product promotion level when we would like to sell more of this exact product, but we use this case as an example of our technology leadership or innovation approach toward our clients. Without doubt we feel that spending in IT is most important right now than any other time before.
“There is a permanent battle between the bad boys and the good bankers” You talked about the iPhone app and obviously there are security concerns throughout the ﬁnancial services industry, and particularly on the mobile banking side of operations. What security challenges are you facing at Alfa-Bank and how are you working to overcome these issues? SM. There is a permanent battle between the bad boys and the good bankers. The problem is that bad boys are always faster and they kick us first. And then the banks react by closing the holes and using other technology to protect them from the known hacks. The main problem in this game is that banks are always behind and the main strategy for us is to build the right roadmap for the security and use it step-by-step, because you can build the most secure application in the world and all it means is the customer will never use it because it is not convenient and they are not knowledgeable enough for all these codes or readers. At Alfa-Bank we suppose that we have to build the right roadmap for these security issues and use the appropriate level of security for the time that we are living. One example is that we use SMS temporary passwords for our customers to confi rm the transactions for the internet
bank and this is the easiest option for the customers right now, which exists on the market because fi rst of all you save a lot of money on the distribution and the logistics for the customers because they can get passwords anywhere in the world and use the application. However, on the other hand, SMS is not a very reliable technique to protect transfers and we would like to continue to move in the direction of other technologies and would like to use the customer’s phones somehow to get this data and use it. If you think that the phone is always with you and as a result we have to fi nd a way to use the phone in a different way – an alternative to SMS – to help the customer to use applications, to connect to the bank. So the main message is, first of all you have as a banker to use the upper level of security to protect your customers, but not exceed the level of risk that you see from the market, to fi nd a balance. Second, you have to produce a roadmap, which will show you exactly what is the next step for security. You have to be ready to jump to this level immediately when you see the attack or any attempt to steal money from your customers. Th ird, you have to fi nd the way to do it in the easiest and most convenient way for your customers. These three pointers provide are the right security model for the banking industry and for Alfa-Bank in particular. Compliance is a hot topic – even more so since the ﬁnancial crisis. In your opinion, can compliance ever completely eliminate risk, or does it need to work in tandem with other efforts? SM. The battle with compliance and risk control methodology and approach – not eliminating many banks in the west from the problems, which we’ve seen over the past two years – is that compliance has always been and always will be important. I suspect that compliance will improve and improve so that there will always be a discontinuous process like security. You will see the next wave and decide that the problem is this or that area of compliance and that is how people improve. There is always a balance so I don’t think that compliance will completely protect us but I suppose it is a good approach that the community, especially the European community, is working more and more on the compliance principles to new standards. Alfa is one of the seven or eight banks, which will see western practice implemented. We are always looking for the best practices, especially from the west, to set up these standards that are worldwide proven and accepted. And we are one of the banks that will run this in the near future, so that’s one of the good examples of how Russian government and how Russian banks are following the principles and global challenges. Looking at the technology side of things, I understand that ﬁnancial IT positions are no longer purely about technology, they also have to incorporate vital people management skills. Do you believe that the human
lfa-Bank plans to borrow around US$1 billion abroad to take advantage of improved investor sentiment. “The markets are not yet fully open for us, but they are opening. We think we have a ‘window of opportunity’ and it is open,” Alfa-Bank’s President Pyotr Aven told Russian Prime Minister Vladimir Putin, according to a government transcript.
“In the nearest future we would like to borrow around US$1 billion on the Western market, which was not possible just half a year ago,” Aven continued. Alfa-Bank has increased its loan portfolio by 5.7 percent in the ﬁrst ﬁve months of the year and lending growth could approach 15 percent for 2010 as a whole. Source: Reuters.com
side of the technology operation is given enough importance? SM. My role incorporates being a member of the board so I spend 50 percent of my time just leading my team, taking care of, and navigating, them. My guess is that people are the more important asset of any organisation, especially the banks and particularly in IT because IT is a really complicated topic and sometimes you can keep all the information, all the data on paper or in the right format but you have to rely on people and their knowledge of activities. Sometimes you see the problems that we never saw before and then you use the best people from your team to solve it. So that’s the answer: people are the most crucial element of IT right now and if we take a look at the market in IT and HR then you see that the prices are up, we pay more and more for the best people and there is a gap between the demand and the real people on the market so that’s a good position to be in with IT, especially right now, in any part of the world. And Russia is one of the examples. I talk to my friends in the banking community in Austria, in Slovakia, in the Czech Republic and always I hear about people, people, people, and how we don’t have good people and we have to search for those good people. This is definitely one of the main challenges in IT management, where to find the good people. Finally, what are your key technology priorities over the next 18 months or so? SM. The IT landscape is changing so the classical windows for IT-based solutions are going away, and so enter a new era of mobile is coming and cloud computing. We would like to use both – the cloud computing approach for all our data centres and for the data distribution and we would like to use the mobile operations and mobile technologies for our customer service and support. We will be very heavily involved with collaboration and vendors to find a way to give to our customers, to let them use our services everywhere at any time, that’s the main challenge and that’s what we’ll be looking to tackle.
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Coming of age David Gladding looks at how and why video conferencing technologies are improving the uniﬁed communications sector.
As Senior Director of Global Sales for ACT Conferencing, David Gladding oversees direct and channel sales strategies globally. Gladding brings 19 years’ sales and sales management to the job, 11 with ACT. Prior to ACT, he served as general manager at NYNEX and vice president of sales at AUSPED.
It’s been said that video conferencing has ‘come of age’. Can companies successfully use this tool to achieve business velocity? David Gladding. Remember the days of choppy image quality and sound delays? Well, video conferencing has made leaps and bounds over the last decade; state-of-the-art video room equipment and web cams can now deliver clear and effective video at low price points, allowing businesses to use video conferencing in a more efficient manner and increase business velocity. And of course, there’s the green issue. The migration to unified communications and the impact of Web 2.0 have also played a role. Added to this, ease of use and a greater awareness by consumers of video conferencing have influenced corporate environments – just think of the impact Skype and social networking has made over the past decade. Thanks to all these technological advances, video conferencing has without doubt ‘come of age’ and is now a viable medium for effective face-to-face communication. And with 80 percent of communication consisting of non-verbal and visual cues, the use of video conferencing means that businesses can communicate more effectively with clients and colleagues across the globe. When IT budgets are being slashed, what incentives are there for companies to invest in video conferencing technology? DG. The benefits of investing in video conferencing are huge. From decreased travel, which obviously saves time
and money, to faster decision-making and a reduced carbon footprint, video conferencing is definitely impacting businesses worldwide. Just think back to the weather conditions earlier this year in the UK. It was estimated that one in five workers stayed at home when the UK was snowbound and the cost to the British economy reached between UK£600m and UK£2bn, according to the Federation of Small Business. The volcanic ash cloud also played a major part with people stranded abroad or unable to travel by air to meetings. We see more and more companies turning to video conferencing as a routine and effective way to collaborate virtually with colleagues and clients around the world. Video conferencing will inevitably play a part, as people can conference or work remotely instead of travelling, which leads to more efficiency, productivity and, of course, addresses the need for businesses to stay connected 24x7. Research has shown that a majority of companies don’t use existing video conferencing equipment. Why is this? What is ACT Conferencing doing to address this to help customers maximise their ROI? DG. It all boils down to technology. Surprisingly, some 75 percent of video conferences don’t work the first time. That’s purely due to a lack of understanding of the technology. It does pay to know your system and take the time to learn how to use the technology and not be intimidated by it. But this potentially requires an in-house team to run the service and this may not be a cost effective option for many businesses. To address this and help customers maximise the ROI of their equipment, ACT offers a complete managed service from implementation to user support. This provides a dedicated managed service team who help users around the clock, monitoring in-house equipment and ensuring that the technology is always working. This gives companies all the benefits of video conferencing without the need for in-house staff to manage the technology. For example, one ACT video managed services customer, with 150 network endpoints, saw their monthly conference volume more than double from 80 to 190 after bringing in ACT’s managed services. Or if the resources and equipment are simply unavailable in-house, ACT has established bookable video conferencing suites – ACT Proximity. With some 4500 video conference rooms located around the world, it is one of the largest networks of state-of-the-art video conferencing rental sites. It’s a quick and easy way to schedule video conferencing facilities, as booking requests to reserve a video conferencing room can simply be submitted online via ACT’s website.
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NEXT BIG THING
Automation by 2015? Jon Alvar Øyasæter looks at how automation could help the capital markets sector deal with the challenges ahead.
he most serious economic crisis since the worldwide slump of the 1930s is now behind us. With the markets starting to settle down, firms are trying to make sense of the new global financial order. There’s no doubt, however, that there’s going to be plenty more change over the next five years. The introduction of new financial regulations is continuing and these rules are bringing with them increased demands for transparency and risk control. One of the most obvious developments will be how capital markets firms tackle the need for seamless and efficient one-entry operation between the front and back office and how they run and manage best-of breed multi-system architectures. And they’ll be considering all this while ensuring compliance with new international regulations and national rules covering everything from market abuse to reporting. The need to comply with these regulations and meet risk management requirements will in turn drive demand for real-time end-to-end processing. But it’s not just about implementing new systems and processes; it’s also about examining how firms can harness their business advantages. Some think the exchange-brokerinvestor structure will be transformed into a new network that’s open to all. This might lead to certain firms choosing to specialise in just a small part of the total trading value chain while others optimise their business across the value chain.
Beneﬁtting investors This transformation could lead to the development of a more efficient, standardised and large-scale infrastructure. In turn, automated systems, open architecture and largescale processing will be developed, creating economies of
Jon Alvar Øyasæter is responsible for Tieto’s Capital Markets and Life business. He has many years of managerial experience in international solutions and software in the ﬁnancial industry. He also has experience as an analyst, controller, business developer and CFO. He holds a master’s degree in Business and Administration.
scale that will benefit everyone. A key challenge for the investment community is how to harness this to optimise their own value chain and benefit their end customers. The move towards automation is set to shift up a gear, building on the swift progress already made in the capital markets sector. Programme trading has swept through the industry and trading activities has mushroomed. Th is has brought new challenges for firms which have to create an automated pricing strategy and manage liquidity across multiple funds. Automation has improved real-time risk management, by increasing deal flow and creating better links between market makers and remote sales traders across a banking group. As a result stronger client relationships are emerging and improved efficiency is reducing transaction costs. Although a certain degree of automation is essential for banks to cut costs, improve business processes, tighten up physical and financial supply chains and build their market share, in practice it is difficult to achieve 100 percent automation or straight-through processing (STP) across the whole trade finance ecosystem.
Automated progress Progress is already being made in areas such as trading, value-added services, risk management and corporate action. Trading is already close to full automation, making monitoring easier and more cost effective. Block trading is increasingly catered for through dark venues. However, as liquidity fragments, executing large blocks is getting more challenging. But we expect more developments in this area. Value-added services during and post-trading are emerging, boosting sales, development and co-operation. Initial Public Offerings (IPOs) are yet to be fully automated, and the industry should be able to enjoy better and faster sales and improved cooperation in future. How will things look in 2015? Some think that by then a fully automated post-trade process could be in place, which is run by large-scale international operators. Others think it’s all about achieving an acceptable – rather than complete – level of STP, and this seems to be the best solution for banks so they can improve efficiencies and meet customer demands. Tieto believes both trends need to be encouraged, supporting the optimisation of the end-to-end process to ensure a true real-time STP operation can be achieved and at the same time taking advantage of the development of efficient market platforms. www.tieto.com/ﬁnancialservices ﬁnancial.firstname.lastname@example.org
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GOING MAINSTREAM With mobile banking ﬁgures set to soar over the next ﬁve years, Juniper Research’s Howard Wilcox reveals the reasons behind the phenomenal ﬁgures.
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he use of mobile devices to carry out banking transactions is currently booming, and is set to stay that way. According to Juniper Research, 400 million mobile phone users will be using their devices for banking purposes by 2013. Mobile Banking Strategies: Application, Opportunities and Markets 2010-2015, an industry benchmark report, provides the most detailed view of the mobile banking market to date. Howard Wilcox, author of the Mobile Banking Strategies report, explains that three main findings came out of the study. First, Juniper Research believes that user numbers will double over the next three years globally, from 200 million to 400 million. A large part of this is due to the ever-increasing importance of SMS-based banking services, but also the growth of mobile web banking services and, importantly, smart phone apps. Second, SMS is going to play a critical role in the future. “We see the volume of messages growing to some 90 billion worldwide,” explains Wilcox. “It sounds like an awful lot, but what it actually equates to is roughly one message every two days for every mobile banking user at that time. Those messages will be delivering information like balances, recent transactions and other alerts being sent by users.” The third conclusion from the report is that while, according to the Juniper survey, 80 percent of banks offer some form of mobile banking across all world regions, a number of banks are actually limiting their options because they’re offering insufficient mobile channel options. For example, they might offer a smartphone application, but not a web-based browser option or an SMS banking service. The report suggests that banks really need to expand the channel choices they have on offer to make banking services more personalised. “Some banks haven’t got all three choices yet. Ideally they should have all three to really give customers the most choice across all three ways of accessing these services,” says Wilcox.
“Once more people realise mobile banking offers more convenience, greater ease of use and great services, the more people will come on board” Looking at the reasons behind the growth in mobile banking, Wilcox believes that it is simply a case of increased supply and increased demand. He says that as more people realise mobile banking offers more convenience, greater ease of use and great services, the more people will come on board. “At the end of the day, for most people, doing their banking is not an activity that you do just for the fun of it. It’s something you’ve got to do. And if you can do it, say, while you’re commuting or whilst you’re on your way to something else, then it saves time,” he says. “It becomes more convenient.” The second aspect behind the increased adoption is the demographic factors at play, suggests Wilcox. “The factors are essentially related to people who are aged late teens to mid 20s, and these are people that have lived their lives based around their mobile devices. In fact, these people are not particularly online bankers. Because they organise their whole lives around their devices – they buy things, organise their social lives – it’s natural that they should do banking on their mobile.” Wilcox believes that there will be a growth in demand in their demographic group as these people – who have maybe got their fi rst job – suddenly have more money to manage. Th is will become a big opportunity for the banks.
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A third reason for growth in the market is simply that more and more banks are going to be offering mobile banking services. Offering all three services – a smartphone application, web-based browser and an SMS service – will become more common. “Lloyds TSB, for example, advertised mobile banking in a high-profi le, above the line campaign in the UK,” says Wilcox.
Customer service More and more banks are offering these services worldwide in order to appeal to their customers and improve customer service. Wilcox explains that mobile banking can certainly improve this important element of the banking sector. “Take the simple example of the most common enquiry to a call centre from a banking customer which is, ‘What’s my balance?’ For somebody to call the call centre and ask that question it could take several minutes. Alternatively, you could have an alert set up to tell you your balance is X. It could be daily, it could be every other day, or once a week, but it’s sent to your mobile that you’ve got with you anyway and saves you phoning up.” From the bank’s point of view, they are providing a much better service because they don’t have to be asked. It works very much in their favour and it also works with other types of alert, such as the last five transactions for example. Wilcox explains that there are several new information alerts aimed at improving this area. “There are process alerts, so for example in mortgage or loan applications we’re increasingly fi nding that banks will offer you the opportunity to receive an SMS to say your application has been received or is being completed,” he says. “A quick message like that is faster than the post, and also cheaper.” Wilcox also highlights the importance of alerts in relation to fraud. “One scenario could be this: you might get a message saying that your card has just been used in a particular location for a particular value and SMS back to confi rm that this is you. Th is much improves the customer service side of things because it gives you immediate knowledge that the bank is watching and safeguarding you. It’s also good in terms of immediacy, so if it was a fraudulent transaction you’d know straight away and you could take action immediately. It makes so much sense from a customer service perspective.” He says that on the Wells Fargo website, for example, they offer alerts about credit card usage via their Rapid Alerts service. Fraud is consistently at the top security concerns for banking and fi nancial service fi rms, particularly within mobile banking. Th at said, Wilcox believes a lot of issues around security are perception rather than reality. He says the issue from the bank’s perspective is that they need to communicate the security of their products. Banks need to convince customers that it is secure to have fi nancial information on their mobile phones – by explaining that there is no residual data stored on the device, for example. Other features include using aliases or nicknames instead of genuine names. Wilcox goes on to explain that of the security companies he has spoken to, increasing attempts of fraud in the mobile banking sector are expected. He says one of the reasons it has yet to see much happening in this sphere is because it hasn’t had much PR and that it is only just beginning to come to the fore. “There will certainly be increased security threats in the future. All the threats that are currently experienced online will be seen on mobile. Th is will be an issue that banks will need to address more and more as time goes on.” And it isn’t the only challenge currently facing the mobile banking arena. Wilcox claims that one of the major challenges is mobile data speed. He says that as banks look to offer all three of the technology plat-
forms – SMS, web-based browsers and a smartphone application – there will be issues about the speed of delivery over the network so that the user experience is good. “I also think that when you look specifically at web-based browser banking, the online experience has to be the same on a mobile device as it is on a laptop or desktop computer. So here there are a lot of technical issues to rendering the service to the small screen. Th is could, of course, be related back to why some banks are yet to offer all three technology platforms – they are maybe taking longer to develop them because they’re addressing those challenges.” Another aspect to take into consideration is that smartphones remain a relatively small proportion of the market. So while iPhone applications will get a lot of PR, they are only addressing a small proportion of the mobile users out there. Wilcox believes that for a bank to have extensive mobile banking penetration, they have to provide an SMS service too. Looking forward, Wilcox believes that mobile banking will really take
off in some key areas. He says the scope for alerts and messaging is almost unlimited. “Some banks are even talking about having alerts that banking customers can use to defi ne themselves,” says Wilcox. “You could have so much flexibility that when your account reaches a certain level, or goes below a certain level, or that that you have an alert that tells you whenever a transaction goes through that’s over GBP£300.” Wilcox believes this kind of customer flexibility represents an exciting opportunity for banks to attract younger, non-online users. “From a bank’s perspective, it also gives an opportunity to attract and retain customers. The statistics tell you that this is why banks address the student market so heavily because people tend to remain with the bank for their whole life,” adds Wilcox. Indeed, having a mobile offering in the mix is a great opportunity for the bank. But it should remain just that, an additional channel offered along with the bank branch, ATM, online services and the call centre.
MOBILE-ONLY BANKING Banking has existed online since the late 1990s, but mobile banking is relatively new to the offering. While mobile banking is simply part of the mix for most financial institutions, Japan’s Jibun Bank simply exists for mobile users. It was launched in 2008, through an alliance between Bank of Tokyo-Mitsubishi UFJ and KDDi, a telecommunications company with more than 30 million subscribers in Japan. According to Takeo Tohara, President and CEO of Jibun Bank, the new bank came into being as a result of the ever-growing shift in Japan toward using mobile phones for the many facets of daily life. Analysts claim the model has pushed the mobile channel as far as it can go, but
add that it would be a poor fit for most other markets. Jibun Bank plans to develop a full range of banking services, from account opening to account closure, and everything in between, via their handset. In addition to transactions such as deposits and funds transfers, Jibun offers credit cards and personal loans and more complex banking services such as foreign currency deposits and e-shopping payments. There are some examples closer to home too: UK-based start-up Mo Bank combines the capability to view details of existing bank accounts with mobile shopping for train and event tickets, books, DVDs, fast food and more.
THE ONLY WAY IS UP According to Juniper Research’s in-depth interview in the Mobile Banking Strategies report, new types of SMS mobile banking alerts will help to treble the volume of mobile banking messages to almost 90 billion every year by 2015. However, while many are grasping the importance of offering mobile banking services to customers, the report identified that some banks have yet to seize the potential of SMS services. The overall strategy behind alert messaging development is to encourage customers towards the self service world, with information delivery via SMS.
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The report also announced that Wells Fargo is the winner of the Future Mobile Award for Mobile Banking 2010, taking account of its multiple platform strategy and continued service innovation, such as the recent near real-time warning of potentially fraudulent activity. Other findings included: • Over 80 percent of banks offer some form of mobile banking • Western Europe will be the region with the highest penetration of users in 2015 • Transactional mobile banking usage will see similar growth rates to SMS
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Delivering new efﬁciencies in the back-ofﬁce David Parcell, MD of Verint Systems EMEA, believes it’s time for the ﬁnancial sector to adopt a new approach to back-ofﬁce performance. In a recent FST column, IDC said that increasing operational efﬁciency is one of the big goals for banks this year. But given the cuts already made, where can they ﬁnd new efﬁciencies? David Parcell. I think the next phase is defi nitely the backoffice. Organisations in the fi nancial sector all acknowledge that handling forms, quotes and claims remains a labour-intensive process. What’s more, when the process goes wrong – volumes surge or there’s a problem somewhere – the only solutions are costly and inefficient: get more people in or offer overtime. Given how performancefocused those same organisations are in their contact centre, it’s a real anomaly. Haven’t organisations focused on the back-ofﬁce before? DP. Yes of course, but not in a measured and manageable way. Typically, back-office solutions have begun with devising the ‘ideal’ process on paper and then trying to build that in reality. That leaves a gap between what people think the process is – or should be – and what really happens. The alternative is to start by mapping out what the real process is. Using desktop and process analytics, you can work out exactly how back-office staff complete a certain task: what tools they use, where they go for information. You can then quickly see where bottlenecks might appear or where the process could easily be streamlined. Because these processes are repeated thousands of times, a saving of a minute on each transaction is significant.
It’s exactly the kind of monitoring contact centres have adopted, and I think they provide an invaluable lesson for the back-office. Over the last decade, contact centres have become incredibly good at performance management. They have identified clear service-related goals, and put in place systems to enable them to meet them.
Is it just about saving time? DP. Absolutely not. A recent report from customer experience consultants TARP Worldwide found that 60 percent of customer dissatisfaction results from problems in the backoffice. Using process analytics, you can see exactly where the weak spots are: where something hands on to another team, or where account opening could stall. Once you’ve found those weak spots, you can take action – which has obvious consequences in terms of customer satisfaction. Does changing processes not create a compliance risk – especially if staff are accustomed to working in a certain way? DP. No: desktop and process analytics can actually help you improve compliance, because they enable you to track whether staff are following the right process. Are they doing necessary credit searches, for instance, before passing an application on?
David Parcell is Managing Director of Verint Systems’ EMEA operations and one of the company’s Corporate Ofﬁcers. Before that he was Vice President of EMEA for Aspect. During his career he has also held management roles at Co-Cam and Datapoint, as well as senior sales positions with Unisys and Olivetti.
So how can that be translated to the back-ofﬁce? DP. To take just one example, contact centres typically use workforce management systems to help with planning and scheduling and to respond to surges in demand. Yet these tools are rarely used in the back-office. Put simply, workforce management gives you the ability to match the workforce to the workload. For example, banks know that just before the tax return deadline, investments in ISAs will increase, and companies take on extra staff to cope. But what of other surges throughout the year? Are there certain days of the week – or even times of day – when the volumes are higher? On a more ad hoc basis, when a backlog builds, you need ways to spot it and solve it fast. So imagine being able to redeploy staff from the front office to the back at the fi rst signs of a problem. Instead of apologising to frustrated clients – and getting more frustrated themselves – agents are directly involved with the solution: processing claims or handling applications. It’s a new approach to optimising the use of your resources, and it begins with the ability to measure what the back-office is doing.
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Customer trust levels in the banking industry have plummeted over the past two years. FST takes a look at how best to manage relationships and regain trust to maintain a meaningful and successful connection with consumers.
MANAGING CONSUMER BEHAVIOUR
ver the past two years the European banking industry has gone through massive amounts of unprecedented change. After the recession the industry is now a subject of intense public scrutiny and as such the impact on customer relationships seems inevitable. In Ernst & Young’s February 2010 report, Understanding Customer Behaviour in Retail Banking: The Impact of the Credit Crisis Across Europe, the professional services fi rm looks at managing customer relationships and how to achieve a successful banking connection. There is no doubt that customer trust in banks has fallen dramatically – the days when fi nancial institutions were one of the most respected organisations on the high street are officially no more. Across Europe, 45 percent
Customer Behaviour.indd 114
of customers say that the crisis has had a negative or very negative impact on their trust in the industry. The Ernst & Young survey found that 24 percent of respondents had at some point changed their bank account, with 10 percent of the change happening in the last two years alone. A further 11 percent of Europeans said that they plan to change their main provider in the future. Customers in Spain (20 percent) and Italy (14 percent) are the most likely to change their banks, with only six percent in Belgium and France planning to do likewise. The Ernst & Young report looks at four main areas: the impact on trust, loyalty, reasons customers look elsewhere and measuring satisfaction. In regards to the impact in trust, the decline has severely impacted customers’ relationships with their banks. In turn, many
fidelity and extend the level of cross-selling, suggests the report. Yet again there are clear distinctions between the principal banking economies of Europe, with customers in Italy appearing to be more loyal with 66 percent claiming they hold only one product or less with other banks, compared to 43 percent in Spain. While consumers continue to diversify their banking portfolios, it appears that customers maintain their main bank relationships as positive. Whether as a result of inertia or genuine satisfaction, more than half of customers in Europe have stayed with their main bank for more than 10 years, and seven out of 10 have remained loyal for more than five years.
24% of respondents have changed their bank account at some point
Have you changed your main bank? 100%
Customer Behaviour.indd 115
No, but i am planning to change
Shopping around Ernst & Young points to the fact that respondents are diversifying their portfolios and shopping around. The statistics demonstrate a clear opportunity to increase
What would you say is the impact of the crisis on your trust in the banking industry?
customers have moved to diversify their exposure from one institution by using other banks for other services. As a result of this, a customer’s relationship is perhaps more diluted across the various entities. Across Europe experiences are different with the affect of the crisis varying across countries. As a result, the consequences of the crisis in trust also vary. Most negatively impacted of the six countries surveyed is the UK, where the majority of respondents – 56 percent – say their trust in banks has decreased. At the other end of the scale in Germany, 60 percent of those questioned say that the crisis had made no difference at all to their level of trust in their bank. Ernst & Young suggests that there is a significant opportunity here to remain the number one provider to their customers and present an ethical and robust image in a bid to attract more customers. By employing a ‘back to basics’ approach to retail banking, organisations will be able to increase clarity and transparency around complex products. Ernst & Young also suggests innovating around the customer experience, so as to improve one-toone relationships and maximise business by developing personal relationships through the expanding channels that are growing in popularity. Looking at loyalty, Ernst & Young were surprised to see that the concept of the main bank was under threat across Europe as customers look to spread their allegiances. Just 19 percent of respondents held one type of product with their main bank, when considering daily operations, savings, investments, loans, insurance and credit cards. Ernst & Young reports a marked difference between countries on the respondents faithfulness to a single provider. In the UK, only 11 percent of customers can be considered ‘very loyal’ (holding more than four products with their main bank), whereas in Spain and France, more than 40 percent of customers are still extremely faithful to their primary bank. The report suggests that the concept of a main bank is under threat and points out that with 74 percent of respondents only having one type of product in each of their other banks it could suggest that customers are more frequently selecting a bank for a specific product. Ernst & Young says that this could mean the beginning of an era in banking specialisation. It could be time for banks to look more closely at the ways in which they interact with their customers. With customers spreading their loyalties it is important for banks to not only develop new strategies to target dissatisfied customers, but also focus on strong relationships and loyalty as a source of income. There is room to capitalise on the stable of brands that are often owned by single institutions and develop new ones to appeal to alternative customer bases.
Very negative impact
â€œAcross Europe, 45 percent of customers say that the crisis has had a negative or very negative impact on their trust in the industryâ€?
Customer Behaviour.indd 116
France and Belgium appear to benefit most, with more than 80 percent of customers in both countries having stayed with their main banks for more than five years. Germany, in contrast, saw 25 percent loyalty for more than a decade and only a further 14 percent stayed for more than five years. Ernst & Young warns that the longevity of a customer relationship is not always an indicator of profitability, however. Banks need to be weary of customers that are no longer active or productive, despite their lengthy ties to an institution. A further challenge, says the report, is the new regulations that came into force at the end of 2009. The European Banking Industry Committee has now adopted a set of Common Principles for Bank Account Switching, which will make it easier for consumers to switch their current accounts within their own country. A European Commission report found that 56 percent of European consumers in 2008 had saved money by moving banks, so it is hoped competition will be increased among providers. Th is creates both opportunities and disadvantages for retail banks as customers take advantage of the new rules and competitive pressure heats up. Ernst & Young says that it has never been so crucial for retail banks to focus on their long-standing, loyal customers and concentrate on cross-selling and trust-building exercises on the customers that count. Improving customer service and service quality will have a major impact as will targeting resources towards key customers.
Indeed, customers will continue to look elsewhere. The report says that 10 percent of customers have changed banks within the last two years and a further 11 percent plan to do so. Among those who have changed their bank, 63 percent of German respondents did it within the last 24 months. Likewise, in the UK and Italy, half the main bank changes are concentrated in this time frame. The highest risk of attrition is in Spain, where a fi ft h of all customers expressed plans to move from their primary provider. France and Belgium seemed less impacted. The Ernst & Young report says that it is vital banks first investigate the factors that are driving customer attrition before they can attempt to introduce any meaningful retention strategies. A third of respondent in the report attribute their decision to change banks to service levels, while 26 percent blame the price of products. Among those planning on leaving, these issues take on even greater significance with 43 percent blaming price and 42 percent attributing dissatisfaction with service. A massive 25 percent plan to change their main bank because of a lack of trust. Once again there were clear differences between various European countries in their reasoning for changing their bank. Price elasticity is at its lowest in France and the UK, where only 16 percent say they would change provider because of price. In Italy and Germany by contrast, price is considered at 50 percent and 55 percent respectively. Trust is the greatest concern in UK and Belgium, where 26 percent of customers blame their
decision to leave on a lack of trust. In France, the biggest worry is service, blamed by 35 percent for their move. Ernst & Young’s report makes it clear that the current band of dissatisfied customers is not necessarily the least loyal; expressing an intention to leave a main bank and actually doing so are two very different things. Nevertheless banks need to look at improving retention and harnessing new customers. The fourth area in Ernst & Young’s Understanding Customer Behaviour in Retail Banking report is around measuring satisfaction. The company found that service quality emerges from the respondents as a clear driver of customer satisfaction with 43 percent ranking it as ‘highly important’. Pricing policies and personal relationships with advisors ranked 37 percent and 32 percent respectively. The majority of respondents rank product quality and diversity and the delivery of services as of only medium importance. While service quality is a priority for the majority of European clients, it ranks behind personal relationships with advisors in France and behind pricing policies for those in Spain. But despite the disparity, a message is shouting loud and clear that customers throughout Europe would like more personal attention from their banks. Nearly half of those surveyed across the continent
– 46 percent – consider the level of personal service they receive to be either bad or limited with 12 percent of the UK and 13 percent of Italian respondents saying the attention they receive is bad. Spain produces the most satisfied customers, with 40 percent describing the personal attention they receive from their bank as excellent and a further 34 percent describing it as good. The report maintains that there is a lesson to be learnt by the fi nancial organisations. They need to understand that despite the increasing demand from customers for services such as online and telephone banking, this should not be developed at the expense of personal relationships. There is certainly an opportunity for banks to invest in retention models that appreciate customer need and values. In the UK and Italy in particular there is room to gain competitive advantage by improving personal contact offerings and focusing on relationships. The Ernst & Young report goes on to confirm that the credit crisis has had an impact on consumer confidence, loyalty and customer retention in the sector. With this comes both opportunities and challenges: banks need to ensure they are responding, investing and improving customer service alongside improving recognition and loyalty programmes and personalising relationships.
Key findings The ﬁnancial crisis has caused customers to change their attitudes towards their banks. Customers are looking to move provider or diversify their banking portfolio, spreading ﬁnancial products across a number of institutions to minimise their exposure to perceived risks. The impact on trust: • Today’s economic recession has had a negative impact on the trust that 45 percent of Europeans have in their banking providers • The UK has been most negatively impacted with 56 percent saying their trust in banks has decreased • In contrast, 60 percent of German respondents say the crisis has made no difference to their level of trust Loyalty: • Among customers who have more than one bank, 74 percent have only one product with other non-main banks, using them as speciﬁc banks for speciﬁc products • More than half – 54 percent – agree they would join a loyalty programme if their bank offered one
Customer Behaviour.indd 117
• French and Belgian customers hold the longest relationships with their banks with 85 percent and 83 percent respectively banking with their main provider for more than ﬁve years Reasons customers look elsewhere: • 24 percent of respondents have changed their main banking provider at some point in their life, but 10 percent did it in the last two years • A further 11 percent plan to change imminently, which points to a recent acceleration • Price (43 percent), service (42 percent) and products (31 percent) are the top three concerns driving customers to change their banks Measuring satisfaction: • Service quality is the most important criteria for customers when choosing a bank • Nearly a third of customers consider a personal relationship with their bank advisor to be highly important when choosing a bank • The greatest dissatisfaction is in the UK and Italy where 12 percent and 13 percent respectively, say the attention they receive is bad, whereas 40 percent of Spanish respondents describe the personal attention from their bank as excellent
Changing online expectations Jean-Benoit Sorge reveals how social media is impacting on customer service expectations. cent), followed by visiting the website’s self-service facility (24 percent). Only 19 percent said they would opt to call the customer services team. Not surprisingly, there were startling differences of opinion between the 18-24 and 45+ age groups. As many as 61 percent of older online consumers would turn to email or phone for help, compared to just 44 percent of 18-24 year olds. The younger age range was more inclined to use online chat, with around a fifth saying they prefer this communications method and 22 percent trying the website.
n September 2010, it was reported that over 1.25m official complaints have been made to the Financial Services Authority (FSA) around issues such as poor service, bad advice and bank charges. Shockingly, this only serves to represent an upward trend, with a five percent increase in official complaints since 2009. Clearly, many financial institutions need to improve the quality of customer service they provide to consumers, but it’s not an easy challenge. In today’s digital world, the disparity between customer expectation and what is actually delivered is only set to increase unless financial institutions can step up to meet the demands of today’s ‘social consumer’.
The social consumer Social media has changed the way society communicates and this has dramatically reshaped the expectations of consumers with regards to engaging with brands. Whether it’s banking, shopping, price comparisons or paying bills, these expectations have never been higher. Consumers want immediacy when using what are now day-to-day applications such as Facebook, Twitter, Wikipedia and Wikitude, and expect the same when interacting with, or seeking information from, brands. However, the increasing popularity of social media, coupled with growing consumer expectation that information, products and services should be available at the click of a mouse, poses a challenge in the highly competitive financial services sector.
A multi-channel challenge While branches and telephone banking still have their place, a vast number of customers are turning online to compare and buy products and interact with their bank or building society. In a Moxie Software survey of 2000 British consumers last year, the preferred method of seeking assistance from a banking, insurance or financial provider was email (36 per-
Benchmarking the ﬁnancial services sector So demand for online customer service is high, and as the younger generation grows up this appetite for online assistance is only set to increase. But are financial companies set to meet these challenges? In 2010, Moxie Software carried out a benchmarking study to find out how organisations in different vertical sectors were handling customer service. The effectiveness of the email, website and chat channels of 100 companies was assessed, looking at key criteria that make up a positive customer service experience. The average score across all sectors for online customer experience was a disappointing 33 percent with the financial services sector scoring just 28 percent – behind local government at 29 percent and a long way behind retail (39 percent) and travel and leisure (36 percent). While the financial services sector achieved a respectable 81 percent in web self-service, the 20 banks and building societies failed to impress in email – either through an online ‘contact us’ form or direct email. While it’s fair to say there are sensitivities about emailing personal financial data, the question put to the financial companies was asking how to open a new account, so failure to capitalise on this sales opportunity was disappointing.
As VP of EMEA, Jean-Benoit Sorge heads up Moxie Software’s EMEA operation, overseeing sales, marketing, customer support and partner activity. He is responsible for spearheading the company’s expansion in EMEA, developing new markets and driving strategic sales and marketing initiatives. Sorge has over 20 years’ experience working in the technology sector.
“Financial organisations need to make it easy for customers to get the information they want, when they need it”
Meeting expectations So what is the answer? In the established digital age, today’s ‘social consumers’ expect to be able to interact with companies in multiple ways. Financial organisations need to make it easy for customers to get the information they want, when they need it; those that don’t will be at the mercy of today’s increasingly fickle consumers and forced to compete only on price. Download our Online Customer Service 2010 study at www.moxiesoft.com for recommendations and insights into how to meet the challenges of today’s demanding internet user, to engender brand loyalty, increase sales and deliver cost savings back to the business.
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Peer-to-peer lending website Zopa provides a platform to bring lenders and borrowers together, bypassing the banks. Five years after its emergence, CEO and co-founder Giles Andrews says the publicâ€™s distrust of the greedy banks has been a boon for his business. By Julian Rogers
hen I was a kid I loved the board game Monopoly. Unfortunately I was always bereft of that ruthless property developer streak required to win. I would invariably end up lumbered with a couple of train stations, the deeds to the water works and a few cheap houses dotted around Old Kent Road and Bow Street. After a couple of involuntary nights spent in swanky hotels on Bond Street and Park Lane I was usually re-mortgaged up to my neck and limping around the board praying for the dice gods to prevent my battleship counter from landing me in yet more financial misery. Even being sent to jail looked inviting at this stage of proceedings; you can’t get issued with inexplicable income tax bills or mysterious parking fines when you’re banged up, right? Suddenly, a devious grin would creep across my brother’s face before he threw me a financial lifeline: a UK£2000 loan with an exorbitant interest rate of 50 percent – sometimes higher – to be repaid within the next two laps of the board. Drowning in a sea of debt and ignoring the small print, I would reluctantly accept his offer just to get my desperate mitts on four red UK£500 notes. But this futile bid to keep my head above water and stay in the game meant I was always headed for one place: bankruptcy. Sidestepping the banker and obtaining a loan from a fellow player is pretty much how Zopa works, sans the crippling interest rates. Zopa, an acronym of Zone of Possible Agreement, is a so-called social lending site that acts as a middleman between individuals looking to lend money and those seeking a loan, 24 hours a day. The business was co-founded by Giles Andrews, who led four fundraisings for US$35 million from US and European investors before Zopa burst on to the world wide web in 2005. The business model was based loosely on online auction site eBay and internet betting exchange Betfair, the underlying factor being that these sites also take a commission for bringing two people together in a transaction over the net. Zopa says social lending is a “smarter, fairer and more human way” of lending. An average of UK£4 million in loans is agreed every month. “People really like working together and have convinced themselves that together they can get themselves a better deal than by dealing with more traditional institutions,” explains Andrews, adding that it’s a business model that is outshining the banks. “Our loan book has performed better than any of the UK banks consistently from the day we launched till now – we’ve got default rates they would only dream about.” Borrowers typically borrow around UK£5,000 (the minimum permitted is UK£1000 and the maximum UK£15,000), which is usually put towards a new car or making home improvements, says Zopa. On the other side of the fence, lenders achieve an average return of 8.2 percent. The average lent is UK£2000 but this doesn’t paint a true picture according to Andrews. “It’s misleading because we have people lending as little as UK£10 and we have people lending many hundreds of thousands of pounds.” Zopa charges a one percent service fee to lenders while borrowers pay UK£124.50 on a loan. So what’s to stop an unscrupulous borrower
from running off with my cash, I hear you cry? Well, if you lend UK£500 or more then your money is spread across at least 50 borrowers and the average default rate is 0.7 percent. “I probably wouldn’t choose to lend 10 grand to a complete stranger in the pub on the basis of his credit file,” says Andrews, “but I might happily lend 10 quid to 1000 people who share the same credit profi le.” Checks are made to vet potential borrowers and those accepted are put into categories according to their ability to pay – A* (super clean borrowers) down to much riskier borrowers in band C. There is also a Y group made up of young borrowers. Lenders then make offers, such as wishing to lend X amount of cash to an A-rated borrower for X period and with X amount of interest. The A-rated borrowers then choose whether or not to accept the lenders’ money. If a borrower does default, they are chased for the debt through proper legal channels. The riskier groups pay higher interest rates to the lenders but the default rate will be higher. It’s a case of balancing risk versus reward when loaning out your hard-earned cash.
Crunch time In the last two or three years, Zopa’s growth in popularity has reflected the groundswell of distrust of banks among the public. The credit crisis was sparked by reckless practices by the loosely regulated banks, which snowballed into the worst recession since the Great Depression. Such is the distrust of banks nowadays that owning up to plying your trade as wheeler-dealer hotshot in the City carries about the same stigma as admitting to being a war criminal. Zopa benefited from the banks’ fall from grace, Andrews reveals. “We were three-and-a-bit years old when the credit crisis hit and had been working really hard at building up trust in the business. Consumers didn’t feel they were getting a good deal out of banks – there wasn’t the same degree of banker bashing as there is today, but there certainly was an appetite to look at alternatives.” Andrews says Zopa’s loan book has been properly managed. “We could say we had managed credit properly while all these banks were losing a fortune making stupid lending decisions.” Unlike some of the banks, Zopa took a cautious approach to acquiring borrowers rather than rushing in gung-ho and accepting those with even the most patchy credit histories. “We could have taken much more risk. We could have lent more unwisely and we could have grown our business faster by accepting more of our applicants. We could have pitched the business at more risky consumer groups where the rates of return might have looked more exciting, so that subprime lenders made returns in the high teens compared to prime lenders making returns of eight or nine percent. But had we done any of those things then we wouldn’t necessarily have been able to get the money back to our lenders and I suspect we wouldn’t be here.” While the banks get involved in everything from mortgages to betting on the price of aluminium, Zopa’s business model is focused on unadulterated lending. Andrews says both parties on either side of the deal like the simplicity of it all. Alongside the knowledge that
their eir money is helping real people, lenders particularly appreciate the returns available from Zopa, far outstripping current savings rates. UK savers have had a bum deal since rates were slashed by the Bank of England from five percent to a pitiful 0.5 percent in order to kick-start the fragile economy. Zopa’s eye-catching returns have tempted plenty of out-of-pocket savers to become anonymous lenders through Zopa. “Savers in the UK are being hit where it hurts very hard,” says Andrews. “People who depend on savings for an income, like retirees, are in real trouble and desperately looking for alternatives to get a better return.” Likewise, the banks have been reluctant to lend to customers, so have hiked up their interest rates. It’s been a win-win situation for Zopa. Back in 2005, Zopa’s founders made a conscious decision not to throw money at aggressive marketing campaigns, choosing instead to let the company grow through word of mouth, and its uniqueness generate its own publicity. The day of Zopa’s launch saw the site reported in London’s respected Financial Times newspaper and The Economist as well as a clutch of other print and web publications. The media’s inquisitiveness about the business still exists today, which is reflected by a media section on the Zopa website stuffed with press cuttings and TV and radio clips. As of August of this year, Zopa has been covered by 45 media outlets. “We’re terribly lucky that the story remains interesting” the boss notes. After the launch, Zopa created a stir, particularly among techies and IT professionals who were au fait with groundbreaking internet start-ups. “Our early adopters were heavily dominated by IT professionals and a few people who worked in the City. With any new products like this, the IT boys like to have a look around and talk to each other, because they are interested in technology.” Nowadays, Zopa’s customers come from all walks of life, although the majority tend to be men, especially the lenders, who are often middle-aged or retired men with disposable incomes. “It’s probably fair to say that our very
“The riskier groups pay higher interest rates to the lenders but the default rate will be higher”
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Zopa’s success in the UK led to Andrews and his team eyeing up the almost endless opportunities that lie overseas. However, it wasn’t as simple as just setting up shop in a foreign country and then counting the cash as the punters came flooding to the site. Markets like the US offer “huge potential” according to Andrews, but regulations vary greatly across the world and ultimately proved to be a thorn in the company’s side. “The regulatory challenges are enormous in every country – it’s not like eBay, which is easy to roll out from one country to another.” Zopa launched in the US in 2008 but regulatory pressures meant the business was different to its UK counterpart. “We ended up launching a business in conjunction with credit unions, which are a rather bigger group in the United States than they are here. It wasn’t as strong a peer-to-peer business model as it is here, and we also launched in 2008 right in the face of global Armageddon.” After a year, the decision was taken to withdraw from the US. Efforts to break into Japan ran into difficulties and in Italy Zopa was forced to operate through a franchise. “It’s absolutely not trivial to launch in different countries and indeed in some countries it’s not even possible.” Andrews describes the company’s retreat from the US, the biggest market in the world, as “painful” but is focused on the UK for the time being. “We’ll confi ne our ambitions to the UK for a year or two and see how we get on, because the UK is a big enough place for us to build a substantial and exciting business and then maybe think again internationally.”
big lenders are typically older and either in or approaching retirement,” Andrews reveals. “However, we’ve also got lots of young people lending very small amounts of money, presumably because they think it’s interesting.” Zopa also strives to generate an online community so that users get to interact with one another and discuss the business of lending and borrowing. Its online forum, for instance, is especially handy for those getting to grips with the ins and outs of the site. “We’re very lucky that we’ve got a group of users who are prepared to give up their time and knowledge to help educate new people.” There is also a healthy following on the company’s blog, Facebook and Twitter sites – the latter being a convenient platform to answering users’ queries. “We fi nd that if customers tweet us with a question it tends to get answered very quickly indeed compared to email. So it’s just a very efficient way of dealing with people. The customers like it and the people here like it.”
Zopa passed a major milestone in September 2010, arranging more than UK£100 million in person-to-person loans since its launch in March 2005.
Lenders receive an average return of 8.2%
With Zopa garnering increasing attention and other peer-to-peer lenders such as YES-secure in the UK, Smarva in Germany and Boober in Holland, does Andrews believe traditional bricks-and-mortar banks and other fi nancial institutions should be quaking in their suits? “I think we defi nitely represent an enormous threat to them in this segment of the business because we do it more efficiently,” he states confidently. “So yes, they should defi nitely be worried, but if we and other person-to-person lenders were to take half of the banks’ personal loan business away from them in the next five years, then that represents an enormous opportunity for us but it’s not a terrifying loss for the banks because they do so much else. So we could take a very profitable niche away from them, and it might impact share price a bit but it’s not going to kill them.”
Death, taxes and budgets… they’ll get you every time Steve Horniak reveals the importance of using performance management tools to prepare budgets.
ompanies prepare budgets in a myriad of ways, and each way has its own pros and cons. Every company is constantly assessing and reassessing its budget style to fi nd a better way. Getting into the field has its merits: you get to meet with operations personnel, hear candid feedback and really understand what happens in each location. Unfortunately, this also means you don’t see the bottom line until after you’re home and the consolidation is complete. Of course, the other option – sending out instructions, asking for input on a deadline and reviewing in a vacuum – has its own drawbacks. Regardless, either option is incredibly time-consuming. Which is why we at Infor found a way to consolidate our corporate budget in five business days. Yes, five. It’s not easy. There is a lot of behind-the-scenes work and mindset readjustment, but the faster you fi nish your budgets, the faster everyone can get back to work – and the pay-off is enormous. So where do you start? First, check the egos at the door. Frank and honest discussions are the quickest way to move through an exercise like this, and there is no time for defensiveness or grandstanding. Second, get all necessary players together in complete lockdown mode. No outside emails – no distractions. Th ird, make the effort to have a kick-off meeting to set the tone of the session: everyone needs to know what’s expected of them and what their timelines are for delivery. Finally, all business unit leaders must be required to make presentations before the budgeting really begins to make sure they’re on the right path, prepared with quality information. Anyone who comes with ‘standard budgeting expectations’ of a month-long process full of low-balling and sandbagging is sent back to the drawing board. For our purposes, we had fi nance and operations employees working side by side making changes in real time through our performance management tool (Infor PM 10). Having a standard chart of accounts that flows through all of Infor’s systems allows for easy review and comparison of data across different management teams as well as different periods. From PM 10 we can drill into Infor FMS SmartStream to get all the transaction history that allows fi nance to better understand the trends of the company. Also from PM 10, we can back into our Infor Expense Management tool to validate and challenge travel budgets. The ability to load all 8000+ Infor named employees into our application allows us to budget in detail for each employee (salaries, bonuses, commissions, car allowances,
etc) at a departmental level, but we manage global events such as merit increases and benefits centrally. All of this allows us to get the largest part of our budget completed accurately. The payroll costs for Infor represent over 75 percent of our direct operating expenses. We know where every employee is supposed to be in terms of their organisational structure and manager. At the meeting, we had about 25 fi nance employees actively using the system remotely from the hotel and concurrently with the global accounting community while they did their year-end close. With Infor PM 10, we ran automated, routine consolidations of the budgets, allowing for fi nance and operations to be able to see their changes in near real time. We can also strip out movement related to currency exchange rates to keep data accurate. When additional data was required for entry into the budget, we could update data entry sheets on the fly. In this way, it doesn’t impact the user because entry into the budget portal remains the same, only the next time in the application there is an additional required field. So what are the downsides? You lose some granularity (and some sleep), but questions are answered immediately by co-workers as deeply entrenched as you are, and thoughtful decisions are made as a group. And your budget is done in five days. What could be better than that?
Steve Horniak is Vice President of Finance at Infor.
For more information, please visit www.infor.com
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The Importance of Getting it Right PayPal Inc’s Scott Thompson discusses the challenge of moving money electronically around the world – and why it’s important to stay humble.
hat keeps us awake at night? For most of us, it’s the usual money worries: how to pay the mortgage and put food on the table. When Scott Thompson, President of global online payments giant PayPal Inc, tosses and turns at night, it’s a sure bet he’s worrying about the technology that allows millions of us to pay for goods and services electronically. “When you’re running a technology-based organisation like PayPal, you constantly worry that the system is working as it’s supposed to. Are we, for example, delivering the experiences that the product should deliver?” Because while the business of moving money around electronically may look easy, it’s actually a complex technological beast. “Payments are a very complicated business. As a consumer you probably look at this and say. ‘Wow, this is easy, it works all the time, it works as I expect it to work’. But when you’re down inside the belly of the beast and trying to understand how you build products, how you move transactions around, how you clear and settle things around the world, it’s very, very complicated.” Insomnia aside, Thompson has ample reason to be happy. He helms a company with 81 million active accounts that straddle 190 markets and 24 currencies globally. And uses leading-edge technology to do so. Yet while he’ll admit
to being PayPal’s biggest cheerleader, humility is still his default setting. “We have terrific momentum in the business of PayPal and we have it all over the world. Don’t get me wrong, I’m very proud of the success we’ve had up to this point in time, but it’s still very, very early in the alternative payments and online payments space. People look at us and say, ‘Wow, they are a big company’ but we’re actually a very small company in comparison to the people we compete against and certainly in comparison to the opportunity. But it’s very important to be humble because we service customers all day long and the minute we lose that humility and we don’t treat customers the way they’re expecting, then we lose the franchise that we have and we’ve lost the opportunity.” Thompson, who oversees all aspects of global payment systems, including the product roadmap, architecture, information management and operations says because his business deals with people’s money, they have to get it right every time. “It’s a very intimate relationship we have with people and their money, and customers have a zero defect expectation. It’s got to work every time just as you expect it to. So anybody who has that relationship and breaks that trust, well you don’t have a relationship with those people over the long term.”
Paypal Inc has 81 million accounts that straddle 190 markets and 24 currencies
The key, he says, is to have a sense of perspective. Perspective of where you are, the game that you’re playing, what the opportunity is. “The idea is then that every day we wake up, we come into the office to service customers with that critical mindset – here’s what we’re doing, here’s what our priorities are and, most importantly, here’s how we service customers and we do it with humility in all cases.” It’s a philosophy that has helped PayPal weather the financial crisis when, despite the economic skies falling in, it facilitated US$60 billion in total payment volume. “I guess it just goes to show that when things are turned upside down, people still have buying occasions – you still have to buy gifts for your parents, your nephews, your nieces, your friends. Sure people were taking more time to do research, taking more time to find the best price for the thing that they wanted and then usually finding the best price online. So while things were actually disjointed and there were some discontinuous events during that period, the fact was that people were still buying, particularly over the internet, and we got the opportunity to service those customers in a very meaningful way in a growing section of the market.” So another global company that’s managed to survive and thrive in the past few years. So far, so ordinary. What elevates PayPal into a category of its own is the fact that it caters to 190 different markets, 190 different customer expectations and 190 different payment systems. “Each country has its own set of expectations and its unique systems, so that’s a level of complexity most businesses don’t have to deal with. You have to get it right in all those languages, all those contexts and all those currencies. It’s built into the DNA of PayPal that we’re going to do it right, even though it’s complicated, every single time. But that’s the fun part of this company and that’s the real challenge of what we do globally.” Challenge is a concept Thompson knows a lot about. Since graduating from Boston’s Stonehill College with a degree in Accounting and Computer Science, he has worked
“You could say we’re inventing the future”
for organisations such as Visa USA, where he was the Chief Technology Officer and Executive Vice President of Technology, as Chief Information Officer of Barclays Global Investors, where he implemented a new strategic technology platform and global infrastructure, and for Inovant LLC where he was responsible for the development, support and maintenance of Visa’s Global Payment system which processed tens of billions of transactions. He joined PayPal Inc in 2005 as its Senior Vice President of Product Development, Technology and Operations, before moving into the President’s chair in January 2008. Still, it hasn’t escaped his attention that the road to the top job isn’t usually paved with an IT background. “It is unusual for a CIO or CTO to become the president of an organisation but people who grow up in technology are possibly the best problem solvers on the planet because that’s what they’re trained to do – to take something very big and complex, break it down into its smallest pieces, figure out how to reassemble it in a better way and build whatever it is that you’re embarking on. As the CEO of a company, problem solving is a skill you need to have because in most cases you’re inventing new things, determining new ways to service the customer or to build new products to attract new customers. That’s all about understanding the dynamics of the business that you’re in, then breaking it down to its elements and building it back up into a great product. That’s problem solving.” So what’s next for PayPal? Thompson says he’s currently putting his energies into fully localising the product into more markets around the world so that both consumers and merchants in their 190 markets can fully utilise the product. “It’s an interesting time to be in this business, because people are increasingly doing transactions online, so in a way payments are coming to us and that’s what we do, we move money around online. So of course we’re working to grow the addressable opportunity that we have.” Beyond that, Thompson says PayPal is entering an exciting phase of exploiting innovation in its operational platforms: “So if you’re a developer who doesn’t work for PayPal and you want to build a business that involves money of some sort, then build it on top of PayPal”. Next generation technology – ie using PayPal via your mobile – is the new frontier and Thompson is rightly “psyched” by the innovation that is being applied to these applications. “You could say we’re inventing the future.” So what would this father of three be doing if he weren’t tasked with establishing PayPal as the leading global online payment service? “Well I’m assuming that I’m actually too old to pitch for the Boston Red Sox, but if I could turn back the hands of time and I was a little better, I would love to have done that. But, to be honest, I don’t spend any time thinking about what I would do if I weren’t here. I’m really enjoying myself because I have this great opportunity to work with a team of people who really want to do something very special. “So I get up every morning and I just can’t wait to get to work. I guess at some point when that feeling rubs off, that’s when I’ll decide what comes next or what different path I’ll take but for right now, this is it…”
It’s been a long time coming, but recent developments mean a Single Euro Payments Area (SEPA) could ﬁnally become a reality. We background the long and winding road to SEPA. By Sharon Stephenson
lashback to 1999: John F. Kennedy Jr dies in a plane crash, the Scottish Parliament is officially opened and Shakespeare in Love is named Best Picture at the 71st Academy Awards. January 1, 1999 will also be bookmarked in the collective European imagination as the year that unleashed the single euro currency onto 11 member states: France, Spain, Germany, Italy, Portugal, Finland, Luxembourg, Belgium, Austria, Ireland and the Netherlands. And when the New Years hangovers subsided, three hundred million citizens in countries that had previously
spent a large chunk of the last millennium waging war against one another woke up in a borderless euro zone to the reality of an integrated monetary policy, political convergence and a common currency. Almost a decade on and despite the criticism that the euro has done little to create a cohesive European market, much of the initial scepticism has been swept under the carpet by more pressing issues such as the global economic crisis. Yet, for reasons as varied as the member nations’ languages, one of the key euro-related initiatives, the Single Euro Payments Area (SEPA), is still far from a reality. A natural bedfellow of the euro that has been on the drawing board since 2002, SEPA is aimed at harmonising national euro payment schemes and was launched on 28 January 2008 to make it cheaper and easier to move money around the continent. Essentially, SEPA is the area where citizens, companies and other economic entities can make and receive payments in euro within Europe, whether within or across national boundaries under the same conditions, rights and
“The introduction of the euro as the currency of the euro area will only be completed when SEPA has become a reality”
obligations, regardless of their location. All such payments will be considered domestic, because once SEPA is fully achieved, there will be no differentiation between national and cross-border euro payments. The geographical scope of SEPA includes the 27 EU member states, along with Iceland, Liechtenstein, Norway, Switzerland and Monaco. While the euro bought some transparency to consumers, banks and businesses on a cash level SEPA is, if you like, it’s non-cash equivalent, introducing common payment schemes (business rules and standards) for the straight-through processing (STP) of electronic payments between banks, businesses and consumers across the EU region. Technically speaking, the harmonised SEPA payment schemes based on global ISO standards are a set of interbank rules, practices and standards necessary for the functioning of payment services. A payment scheme defi nes, for example, the relevant currency, the format of the account and bank identifiers and standard messaging formats for banks. In essence, the harmonised SEPA payment schemes can be regarded as an instruction manual that provides a common understanding between banks on how to move funds from Account A to Account B in SEPA. As two of the political drivers of the initiative, the european Commission and European Central Bank, outlined in a statement, “the introduction of the euro as the single currency of the euro area will only be completed when SEPA has become a reality”. So there’s no doubt the political will is there to make the full adoption of SEPA a reality. Or of the benefits that will accrue: last year 15.7 billon credit transfers and a further 17.7 billon direct debits were processed across the Euro area. Industry players point to how efficiently the euro payments market will work once SEPA is fully implemented, while consumers will be able to make secure payments domestically and across borders without having to open separate bank accounts to handle business in different European countries. SEPA aims to introduce common payment schemes for euro credit transfers and direct debits. As a result, bank customers enjoy increased choice of fi nancial service providers. And then there’s the issue of healthy competition within the payments arena. According to a study conducted at the behest of the European Commission, the replacement of legacy national payment systems by SEPA holds a market potential of up to €123 billion in benefits, cumulative over six years and benefiting the users of payment services. On the corporate side of the fence, the payback is even more bountiful: having shared standards allows merchants to easily accept and process payments with any card issued by a bank in SEPA. National borders no longer need to be a barrier to growth and businesses can have a more direct fi nancial relationship with consumers across the Euro region and can even expand their operations across the continent. Similarly, B2B transactions across borders will enjoy similar ‘upgrades’ and will require much less overhead, be more transparent, secure and quicker than before.
On a wider scale, industry experts and the European Commission alike expect SEPA to stimulate economies by lift ing legal, commercial and technical barriers associated with the myriad of local payments regulations and processes in place today. It certainly looks impressive on paper. Yet the process of translating the framework into services for customers and businesses has been hamstrung by delays, prevarication, cross-border fighting and ill will, sometimes on the part of the banks that question how much they have to gain. Around two percent of payment transfers in the SEPA region are cross-border payments, so many banks feel there is not much of a business case to justify the investments they have to make to adapt their payment systems. Several have been reported as saying that it is “nothing more than a political agenda being foisted on us by the European Commission and the European Central Bank”. Nor has the scheme won favour with all participating governments, a factor likely to be exacerbated by the global fi nancial crisis, which has caused further concern about the cost of implementation in these economically straitened times. The body charged with co-ordinating the European banking industry in relation to payments, the European Payments Council (EPC), estimates that, based on current market rates, it would take 30 years to accomplish migration to SEPA if left to market forces. In January 2008 banks started migrating customers over to the new payments system. By summer 2010, some 30 months after the introduction of the SEPA Credit Transfer (SCT), around nine percent of payments within the EU were processed as SEPA transactions. Although this is a five percent improvement on the past year, the low usage can’t have caused too many celebrations among the suits at European HQ. Nor the fact that milestones such as the introduction of the SEPA Direct Debit (SDD) Scheme was delayed by a year. Earlier this year, the European Commission and the European Central Bank established the SEPA Council to promote the realisation of an integrated euro retail payments market by fostering consensus between all major shareholders on the next steps towards the full realisation of SEPA. The SEPA Council brings together the demand and supply sides of the payment market. On November 1, 2010 the EPC released updated and enhanced versions of the SCT Scheme Rulebook and the SDD Scheme Rulebook. From this date, all banks in the euro are reachable for cross-border SEPA direct debits as mandated by EU law. In practice, this means that any consumer who holds an account in the euro area, which provides the option to make euro direct debit payments at a national level, can now make cross border payments by SDD as well. At the same time, companies are now able to collect payments by SDD across the euro area, resulting in enhanced business opportunities. November 1 also marked another milestone in the long and winding SEPA journey – the EPC called on EU
lawmakers to set an end date for migration to SEPA schemes through regulation. According to EPC Chair Gerard Hartsink, “The single element now required to achieve an integrated euro payments market is a clear deadline for the transition to the SEPA payment schemes. “The majority of the market participants recognise that a clear deadline for migration to SEPA is now all that’s required to achieve an integrated euro payment market. Therefore, the EPC calls on EU lawmakers to set an end date for migration to the SCT and SDD schemes through EU Regulation. Earlier this year, the Commission introduced a concept for a regulation to establish end dates for compliance of euro credit transfer and euro direct debit schemes with ‘essential requirements’. In the Commission’s own words, this approach would lead to new and competing credit transfer and direct debit schemes emerging, complying with essential requirements.” However, Hartsink admits to some concerns regarding the possible forthcoming regulation, including its failure to establish defi nite end dates for the phasing out of existing national euro payment schemes. “Th is would prevent the realisation of potential fi nancial benefits that could be reaped from migration to a set of harmonised SEPA Schemes,” says Hartsink. “Existing national euro payment schemes could become compliant with the ‘essential requirements’. As a result, domestic transactions would still be handled by national schemes whilst the SEPA Schemes would be used exclusively for cross-border transactions. Th is scenario is called a ‘MiniSEPA’.” There is also the fear that regulation could allow for multiple competing and ‘interoperable’ euro credit transfer and direct debit schemes. “Th is concept would do little to overcome the fragmentation of the euro payments market and disregards that an optimally efficient payment environment would require that all payment service pro-
viders and all payment service users adhere to the exact same scheme rules and standards (which does not prevent competition on SEPA payment products and services). The EPC does not understand why the European Commission contemplates now a scenario so radically different from the approach it has promoted over the past decade. The shared understanding has always been that SEPA aims at the replacement of a multitude of national euro credit transfer and euro direct debit schemes by a single set of SEPA payment schemes.” The envisaged regulation could also render obsolete substantial investments made by early movers both on the demand and supply sides who, in response to previous calls by regulators including the European Commission, have already renewed their payment architecture to comply with the SEPA Schemes developed by the EPC, says Hartsink. “Banks and other stakeholders shouldered these investments based on the shared expectation and understanding that national euro payment schemes would be phased out. The change of emphasis to ‘essential requirements’ and multiple competing schemes, however, fundamentally contradicts this original assumption upon which these investments were made.” Th is makes it even more critical that the European Parliament and the European Council must issue regulation that sets end dates for the phasing out of existing national euro credit transfer and euro direct debit schemes, he adds. “Th is will ensure that the high costs of running multiple payment schemes in parallel can be eliminated. A regulatory intervention based on the European Commission’s considerations published in March and June 2010, would effectively derail the entire SEPA project and eliminate the extensive benefits SEPA offers bank customers. The EPC welcomes the recent announcement by the Commission that a public hearing will be held to ensure that all market participants are consulted on the most appropriate approach to a regulatory intervention related to SEPA.”
Around 2% of payment transfers in the SEPA region are cross-border payments
EU Level Design & Monitoring Consumer Bodies
European Payments Coucil
European Central Bank
Implementation Plans Monitoring SEPA design and implementation
Merchants Public Admins
Design Shemes and Frameworks Support for national implementation
SEPA Implementation Coordinating Bodies (Design and execution, national implementation and migration planning)
Stakeholders Consumer Bodies
National Central Banks
National Banking Associations
Public Admins Coporate Associations
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A NEW PATH
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Angel Gurría, Secretary General at the Organisation for Economic Cooperation and Development, reveals that the economic crisis will have lasting effects on the Spanish economy, despite ongoing efforts.
s you are well aware, Spain is facing its longest and deepest recession in 50 years. While the depth of the recession has been broadly similar to other advanced Organisation for Economic Cooperation and Development (OECD) economies in terms of real GDP, the rise in unemployment and the deterioration of government finances have been steeper. Importantly, the government response has been appropriate, which helped mitigate the worst effects of the crisis. Th is includes an ambitious consolidation programme to reduce the public deficit and measures to restore confidence to the fi nancial sector, including extensive stress tests on banks measures to strengthen the resilience of the “caljas”. Progress was also made on structural reforms, especially those concerning the labour market. Despite these encouraging responses, the crisis has left its mark on the Spanish economy. The downsizing of the construction sector, while still incomplete, is largely permanent. The current account deficit may have improved, but the debt burden of the private sector, especially among households, is still high, limiting the contribution private consumption can make to future economic growth. Yet, these challenges present Spain with tremendous opportunities. The crisis struck at a time when the bases that had triggered the Spanish economic miracle were already showing signs of exhaustion. The crisis has opened up new windows of opportunity; now is the time to forge a new economic model for 21st century Spain.
Three pillars of reform To realise this transformation, Spain needs to take bold steps. Given the current context, let me stress the importance of reforming the pension system. The government’s plan to roll out the pension reform before the end of the year is key to ensuring the long-term sustainability of public finances and guaranteeing that today’s workers can enjoy the benefits of retirement in 20 years. But here, I will concentrate on three key policy areas that need particular attention to bring about a new growth model for the Spanish economy: the labour market, education and regulatory reform. The labour market is a key priority, especially given Spain’s record unemployment levels among OECD countries. No modern economy can afford to have one in five active workforce members unemployed. In the Euro area, more than 50 percent of those who became unemployed during the crisis are Spanish, and more than one in four unemployed workers have been jobless for more than one year. Bringing the unemployed back to work would strengthen the pace of Spain’s economic recovery, improve social well-being and help lower poverty. It would also have important additional benefits for the Spanish economy in the longer-term: lower unemployment is necessary to improve government fi nances; help households pay their mortgage debt; and contribute to maintain the soundness of the banks and their ability to fund business investment. The labour market reform approved by parliament earlier this year is a significant step forward towards addressing some of the longstanding weaknesses of the Spanish labour market. It reduces the excessive protection of workers on permanent contracts and it makes it easier for firms to set wages according to their economic conditions. Nevertheless, important structural weaknesses in Spanish labour market institutions must still be addressed in order to effectively combat chronic un-
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44 percent of Spanish university graduates between 25 and 29 years old are employed in jobs that require lower skill levels than they possess
Angel Gurria 133
employment. Much work needs to be done to make public employment services more effective in fi nding jobs for the unemployed. To improve incentives for better placement, central government funding to regional employment services could depend on indicators of placement success. More can also be done to strengthen requirements from benefit recipients. Measures need to be put in place to encourage job seekers to look for work more intensively, to curb subsidised routes into early retirement and to link contributions paid more closely to pension benefit entitlements. When it comes to combating unemployment, two groups deserve special attention. The fi rst one is immigrants, the segment of the workforce most severely affected by the economic downturn. The integration of immigrants in the labour market can be improved by promoting the recognition of foreign qualifications, increasing language training and teaching new skills. Th is would also constitute a powerful antidote against the excessive concentration of immigrants in the construction and tourism sectors. The other group deserving particular attention is younger workers. Unemployment levels amongst this group top 40 percent and skills are often poorly utilised.
Education Indeed, youth unemployment brings me to the second key area where we should focus our efforts: education. The transformation of Spain’s economic model can only take place if the education system trains tomorrow’s workforce adequately. Education is the ultimate solution to prevent the intergenerational persistence of unemployment. Our research shows that youth unemployment particularly affects those without full secondary education. Steps to reduce the high number of pupils who leave school aged 16 without qualifications are urgent. In Spain, an additional challenge is the quality of secondary education. Spanish 15 year-olds still perform significantly below the OECD average in all PISA – assessed domains. The most striking shortfall is reading. Two reforms are particularly necessary to unleash the potential that education has to help move the economy towards a sustained growth path. The first one relates to the need to enhance professional training. Despite recent progress, enrolment levels in professional training (Formación Profesional) are still considerably lower than the 44 percent OECD average and the 52 percent average in the EU. Steps to facilitate access to intermediate vocational education degree courses (Formación Profesional Intermedia) are particularly important. Th is should include reducing unnecessarily high grade repetition among pupils who have the basic literacy and numeracy skills to enrol in vocational courses. It is also necessary to make intermediate vocational courses more attractive, by ensuring that they are relevant to local businesses and labour markets. The other important reform relates to the need to improve linkages between higher education and business. A knowledge economy needs to ensure that the competencies accumulated by young people match the labour market’s
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demands. Our most recent data shows that 44 percent of Spanish university graduates between 25 and 29 years old are employed in jobs that require lower skill levels than they possess. Th is contrasts with the 23 percent average of OECD countries. Spanish universities need to match their curricula to the needs of tomorrow’s economy. But public and private employers also have a role to play here. Unfortunately many of Spain’s best and brightest graduates have to leave this country to pursue research careers abroad, particularly in high-tech sectors. To increase graduate retention in Spain, the institutional framework for firm-based continuous education needs to improve.
“To increase graduate retention in Spain, the institutional framework for firm-based continuous education needs to improve”
Regulatory reform Which brings me to the third challenge for Spain’s new growth model: that of creating an efficient regulatory framework to support firm creation and boost the innovative capacity of the economy. Despite figuring amongst the OECD countries with longer working hours, Spain's productivity has lagged. Th is is due to lack of flexibility, limited innovation and a narrow focus on sectors with little value added for the rest of the economy. Improved productivity will increase Spain’s ability to compete in the global economy, but it can also contribute to solving important macroeconomic problems, such as the persistent current account deficit or the health of public fi nances. Regulatory reform can help solve this. Efforts must be directed towards building a culture of entrepreneurship and fostering both public and private innovation. Business access to R&D promotion schemes involving different ministries and regions could be simplified. The capacity to manage and transfer technology should also be improved through greater networking and consolidation among the many existing intermediaries. In addition, public investment and procurement could be enlisted to modernise urban infrastructure (transportation, water, sewage, energy) with a view to stimulating innovation in the business sector. Th is needs to be supported by good regulation. Removing regulatory burdens on competition in product markets is key to strengthening the competitiveness of businesses abroad. Spain has already made good progress in product market reform over the past decade, notably in opening up to international competition and foreign direct investment. Further progress will be made once the Ley de Economía Sostenible is approved, and the regulation of network industries becomes more effective. But the current difficult economic situation calls for further steps. For example, qualification-related entry requirements in professional services are stricter than in many European countries. Easing such requirements can strengthen the competitiveness of businesses that use these services as intermediate input and offer more opportunities for university graduates.
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n August 2009, EU policy makers completed and published their stress test for the EU banking system. Results showed a resilient banking system with strong capital positions in the benchmark case and a sound performance in an adverse risk scenario, including the sovereign crisis. Equity markets have also performed poorly and banks remain reluctant to lend. This study has shown that most of the sovereign debt is held on the banking books of banks, whereas the EU stress test only considered their small trading book exposures. Sovereign debt held in the banking book cannot be ignored however. First, individual bank failures would see latent losses on the trading book realised, a fact that creditors and equity investors need to take into account. Second, and more importantly, the market is not prepared to give a zero probability to debt restructurings beyond the period of the stress test and/or the period after which the role of the EFSF SPV comes to an end. The main reasons for this are: the very large job ahead for ﬁscal consolidation in a period of weak economic growth, and the apparent difﬁculty of achieving structural/competitiveness reforms in some countries in a short period of time. The paper also showed that excessively exposed banks in principle can reduce their exposure by not re-ﬁnancing maturing sovereign debt, with the government funding gap being met instead by the SPV. This would have the effect of transferring sovereign risk from the bank concerned to the public sector. Source: oecd.org
Sustainable growth Last but not least, this new growth model needs to be sustainable. The ongoing conversion to ‘green industries’ is a welcome development, and Spain should maintain its edge here. Spain has been at the forefront of showing that green is compatible with growth. The goal to obtain 20 percent of primary energy supply by 2020 from renewable sources is a reasonable one, and Spain should maintain its lead in the development of solar and wind technologies. However, much needs to be done to create a stable framework that will encourage private investment in this sector. No 21st century growth model can neglect the challenge of climate change. Consumption and production subsidies for fossil fuels that damage the environment are serious obstacles to a new green growth model. Spain is still subsidising domestic coal production for power generation, although less heavily than in the past. The subsidies now in place, and the limited taxation on fossil fuels, do nothing to promote the transition to new sources of renewable energy. Finally, sustainable economic growth also requires sustainable use of scarce natural resources. Pricing the use of such resources is a useful policy tool to encourage efficient use. This also reduces pressure on government finances, because it does away with the need to subsidise behaviour that helps reduce the consumption of such resources. In Spain, a resource that is particularly scarce in many regions is fresh water. Making sure that prices for water use reflect cost adequately can help mobilise private sector funding to upgrade water infrastructure, providing some
Angel Gurria 135
Unemployment in Spain rose to 18% in 2010, a 29.5% increase on 2009
stimulus for investment, as well as water savings. Water policies will be analysed in depth in our forthcoming Economic Survey of Spain, which will be release later this year. The transition from bricks to brains will not be an easy one, but it is certainly a transformation that the Spanish economy needs to undergo. Let us benefit from the current context to undertake the necessary reforms to make this happen. If we continue to look at our reflections in today’s national mirror, our benchmark will be set by yesterday’s policies and standards. But if we broaden our horizons, and look beyond our national boundaries to learn what others are doing, we may get valuable lessons on how to start building tomorrow’s economy. Spain has a number of advantages: a much internationalised economy, leading multinationals, a vibrant and well-qualified young generation and the world’s second most spoken language. Not to mention a thriving and welcoming culture, or the best football team in the world. As one of the success stories of the 20th century, Spain needs to prove its ability to transform and modernise itself once again, building on its unparalleled strengths. As a privileged forum for sharing best practice in all the areas that will be critical to transform Spain’s economic model – employment, education, innovation and green growth – the OECD stands ready to assist Spain in this major endeavour. I hope that in 10 years time we will be able to proudly say: Spain rose to the challenge, and it succeeded. This article is based on a speech made by Angel Gurria in Madrid to Revista Capital.
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Travel 36 hours in Rome P138
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Time: CET (UTC+1) | Population: 2,743,796 (city) | Area: 1285 km2 | Elevation: 20 m
36 hours in…Rome X In the know History has left a city with much to be proud of. Spanning over 2500 years, Rome was the capital of the Roman Kingdom and the dominant power in Western Europe for over 700 years. Later, Rome was ruled by popes such as Alexander VI and Leo X, who transformed the city into one of the major centres of the Italian Renaissance, along with Florence. Today, the Vatican Museums and Colosseum are among the world’s most 50 visited tourist destinations with four million tourists each year. Indeed, the city boasts more world-renowned sights than many other European capitals put together.
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La bella ﬁgura, or presenting your best image – is something Romans aspire to at all times
takes its food very seriously indeed, which is great for those who adore the slow-food bias. A soup of black cabbage, crouton and mussels and baked anchovies with artichokes are the stars of the menu, along with delicious deserts like caramelised prickly pears and balsamic vinegar. If you are looking for something a bit different then Il Pagliaccio should tick the box. A peaceful oasis in the heart of Rome, it’s cosy and elegant, perfect for a business lunch. With just 28 seats reservation is heartily recommended, as are the tasting menus, which are simply delicious.
Sleep Sl S T Hassler Roma at the top of the The Spanish Steps is Rome’s legendary S ﬁve-star hotel. Set in the heart of the ccity’s historic centre, the Hessler is minutes away from Via Condotti and m tthe most popular shopping venues and landmarks, including the Pantheon, St la Peter’s Basilica and the Colusseum. This P is for a super luxurious stay, with old sstyle glamour, chandeliers and marble aplenty. Rooms range from €350 to €110. a If you’re getting down to business Hotel Eden Ed is luxurious yet cosy and offers a world-class business centre in the hub of Rome’s business district. The Ambassador ﬂoor has adjoining suites and living room areas for meetings, and the upper ﬂoors have spectacular views of the Villa Medici. Hotel Eden also offers a ﬁtness centre and spa services along with one of the most renowned panoramas in the world from the rooftop restaurant La Terrazza dell’Eden. For something a little less pricey, try the Daphne, a top-notch, urban B&B with spotless air-conditioned rooms, comfortable beds and a fantastic location, just minutes from the Trevi Fountain. Rates range from €80 for a single room to €630 for a seven person apartment.
Eat Four million tourists can’t be wrong – visit Rome and see what all the fuss is about
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It would be a cultural sacrilege not to have an authentic pizza made with a thin crust and cooked in a wood-ﬁred oven. And the best place in town for authentic pizza romana is Remo. With a prime location on the Testaccio district’s main plaza you can sit outside at wonky tables balanced on the pavement or inside the cavernous interior, overseen by Lazio team photos. Primo, a large, comfortable restaurant with warehouse-chic décor has a decent wine list and
Head out after 11pm if you want to party like the Romans, with the fun-seekers heading for the buzzy bars in Trastevere and Campo de’ Fiori. La Coppelle is the perfect place to relax on leopard-print chairs and lipstick-red sofas with a cocktail or two, while Trastevere’s Big Mama is a temple to blues music. Mr Brown in Trastevere is a popular hangout with a funloving crowd and relaxed atmosphere. For something that goes on a bit later head to Goa, an ethno-chic club in the up and coming Ostiense district. Housed in a huge garage it attracts some of the world’s best DJs to mix hip-hop, house and tribal sounds.
Tine For sightseers, Rome is paradise. First stop is the Colosseum: get your picture taken outside with one of the centurions hanging around outside or head inside for a more cultural look at this awe-inspiring venue. Next is the Pantheon, the best-preserved ancient building in Rome. With bronze doors and curbed brickwork outside and the spectacular dome inside this is a fascinating sight. Trevi Fountain, packed into a tiny piazza should be next on the list, although go at night if you’d rather see it in dramatic ﬂoodlights and without hordes of tourists. Galleria Borghese, in the tranquil surroundings of the Villa Borghese park, is the city’s ﬁnest art gallery with extravagant frescoes, dynamic Bernini sculptures and Renaissance masterpieces. For shoppers, this city is also a winner. Via Condotti is a dazzling strip of glamorous stores including Armani, Louis Vuitton, Gucci and Prada. Off the main strip and on the cobbled side streets you’ll ﬁnd quirkier boutiques with vintage clothing and accessories. In the Trastevere district there’s a bohemian spirit in the winding streets and the outdoor food market in Piazza San Costimato is a great chance to watch locals bargaining with vendors. And Piazza Navona is a great place for art lovers to browse the art galleries and antique shops.
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Hogmany It might be cold outside but this Scottish extravaganza, possibly the world’s largest New Year’s party, is guaranteed to break the ice. The centrepiece is the procession that begins at Edinburgh’s Parliament Square, where revelers carry torches and are accompanied by bagpipes and drums, and ends with the burning of a Viking long-ship and a ﬁreworks festival. Expect an excess of plaid and hangovers.
K 26.01-02.01 Historical Rally of Monte Carlo It is not the roar of Formula 1 engines, but rather the purr of classic cars that will ﬁll the streets of Monte Carlo this winter. Monte Carlo is actually the ﬁnish line of this rally as four cities participate in this four-staged rally: Valence and Briançon, Copenhagen and Turin. In each city the cars are paraded around the city centre before racing towards the ﬁnish line.
(Above Right) Edinburgh welcomes in the New Year (Above Left) Icy conditions test even the best driver’s skill in the Monte Carlo Rally. (Right) Peruvian mime artist Acuna makes it look easy.
L 15.01-30.01 London International Mime Festival If your only exposure to mine is Marcel Marceau, then you might want to pop along to the London International Mime Festival (LIMF). Mime occupies the space between dance and theatre, an undeﬁned playground where people exploit the unique suggestions of idiosyncratic skills. For the past 30 years, the LIMF has been advancing the art of mime and once again the public can attend workshops and participate in post-show discussions with the artists. And yes, the artists do talk during the workshops.
(Left) Actors Leonardo DiCaprio and Michelle Williams bring a touch of Hollywood glamour to the 2010 Berlin International Film Festival.
L 06.02-16.02 Venice Carnival Since 1296, the Carnevale Di Venezia has transformed the watery city into a maze of feathered and painted masks and masquerade costumes. A must do: Martedi Grazzo (Fat Tuesday) when ‘diet’ becomes a dirty word.
K 10.02-20.02 Berlinale – Berlin International Film Festival Not only Berlin’s largest cultural event, but also one of the most important dates on the international ﬁlm industry calendar. More than 19,000 ﬁlm professionals from 120 countries, including 4,000 journalists, are accredited for the Berlin International Film Festival every year. And with more than 200,000 tickets sold, the Berlinale boasts the largest audience of any ﬁlm festival in the world. So kick back in a darkened cinema with a box of popcorn and escape for a few hours.
(Above right) Green with envy at the Venice Carnival (Below) Get your skates on for the Finland Ice Marathon
L 17.02-20.02 The Finland Ice Marathon Think the most sensible thing to do would be to draw the curtains and set the alarm for April? Not so, say the hundreds who each year compete in the Finland Ice Marathon, a fun-ﬁlled skating event held at Kupio’s lake-ice track. The major draw card is the 200km race, though the less energetic are also catered for with distances of 100 km, 50 km and 25 km. Or celebrate winter with the less competitive 100km kick sledding event.
Objects of desire The latest technology devices for today’s business executive Nokia E7 Once the super power of the mobile phone market, Nokia has been slow off the mark in the smart-phone market, and in recent years has been over-shadowed by rivals at Apple and BlackBerry. Today the Finnish manufacturer is ﬁghting back with its new Symbian software, used in the E7, C7 and C6 models. The E7 boasts a large screen similar to those made popular by the iPhone in recent years, but slides to reveal the Qwerty keyboard facility, designed to appeal to the business market. It also allows users to access emails in Outlook, as well as edit Windows ﬁles directly from the handset. Less slick than those of its rivals, the E7 is solid with quality features for the business user. Certainly the best corporate phone from the Nokia portfolio for a while.
Canon G11 It is generally considered that lowering the spec on a device is moving in the wrong direction. However in the instance of Canon’s latest compact camera, lessening the capability of one function has improved the product as a whole. Canon decided to lower the megapixel count from the previous G10 model in order to improve the pixel density on the sensor, making the quality of low light photography better. This may seem like a small development to a device, however Canon’s ‘G’ range has already established itself as the best compact range on the market. The body of the camera ﬁts nicely in the hand and the impressive zoom size allows for some quality photography. It is not without its ﬂaws, however: the menu system is slow and awkward for a device of such capabilities and the price is extremely high which, considering the improvements of rival models at Panasonic may damage the G11’s success in the market.
2 New Amazon Kindle
Sleeker, cheaper, quicker than its predecessors, the latest Kindle has been hailed by UK broadsheet The Daily Telegraph as “the fi rst ebook reader that has a credible chance of cracking the mass market”. Weighing only 240g, this device is ideal for book lovers on the go. Improved e-ink technology has enhanced the clarity of images and has made the device comfortably readable in direct sunlight, unlike the iPad as Amazon’s marketers are quick to point out. The memory can hold up to 3500 books and with more print media outlets expanding their use of the e-reader platform, the Kindle will soon be able to hold your daily newspaper as well.
4 Samsung Galaxy Tab Ever since the iPad barged its way rather arrogantly on to the technology scene, cynics have eagerly awaited a genuine rival to Apple’s tablet. Well here it is. Using Android technology, the Samsung Galaxy is two and a half inches smaller than the iPad, making it lightweight without losing its strength, and with similarly sleek aesthetics. It can send and make calls and text messages, and the 3G internet connection combined with front screen camera allows for video calling. It’s probably too early for Android tablets to seriously contend with the iPad, but with high deﬁnition voice calling capabilities, a well developed email application and compact size, this could be the next essential business accessory.
BOOK REVIEW 143
Let’s Not Screw It, Let’s Just Do It By Richard Branson
How To Be Smart With Your Time: Expert Advice from the Star of Dragons’ Den By Duncan Bannatyne
Love him or loathe him, there’s no getting away from the fact that the larrikin Brit has achieved many remarkable things. In Let’s Not Screw It, Lets Just Do It, he not only shares the secret of his success, but also bangs the green drum by asking us to become more aware of our impact on the environment. He draws on Gaia Capitalism to explain why we need to understand the damage we’re causing to the environment, and why it’s up to big companies like Virgin to lead the way in a more holistic approach to business. Not surprisingly, a bit of self-promotion is never far away, particularly when it comes to promoting the new business frontiers he hopes to conquer, but you can forgive a man anything when he’s this entertaining. FST says: Branson says he isn’t one to do things by the book, but he’s hoping this book will help guide readers. And it does, mainly because of its positive, non-preachy tone – and because of the author’s ability to leave his ego at the front door.
“Time – unlike money, opportunity or good looks – is the one resource that is allocated equally to all of us. No matter what our ﬁnancial or family situation, we each get 24 hours a day.” That, according to Dragon’s Den star Duncan Bannatyne, is the key to success – making the most of our time to extract the maximum ‘bang’ from our days. His book is aimed at helping readers identify what matters to them so they can focus on making it happen. One British newspaper claimed that after reading this book, readers will “even eat a biscuit with more determination”. High praise indeed. FST says:Bannatyne knows more than most what can be achieved in a day, year and a lifetime. Read it several times, make notes then follow his advice.
By Vineet Nayar
Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance By Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, Ingo Walter, New York University Stern School of Business
It’s a radical idea – putting employees ﬁrst and customers second. But it sparked a revolution at HCL Technologies, the IT services giant. In this candid and personal account Nayar, HCLT’s CEO, recounts how he deﬁed the conventional wisdom that companies must put customers ﬁrst, then turned the hierarchical pyramid upside down by making management accountable to employees. In doing so, Nayer helped turn HCLT into what Business Week calls “one of the 20 most inﬂuential companies in the world”.
Little known fact: many of the problems that lie at the heart of the current ﬁnancial crisis stem from a conﬂict that began in the early 1980s when western credit agencies acquired greater power due to investors shifting priorities, and so controlled the ability of corporations to access capital. Exploiting more than six years of ﬁeldwork on Wall Street, this book describes the unspoken conﬂict between corporate executives and the credit agencies responsible for assessing the ﬁnancial risk their investments posed.
FST says: Refreshingly honest and practical, this book offers valuable insights for managers seeking to grow the company faster and become self-propelled engines of change.
FST says: An in-depth and interesting read that neatly punctures the cloud of confusion hanging over so much of the ﬁnancial crisis.
Employees First, Customers Second: Turning Conventional Management Upside Down
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The future of
uisine goes to the dogs at the world’s ﬁrst pop up doggy café, which launched in London in November. Lily’s Kitchen Diner opened for two months to help raise money for the charity Dogs Trust and cater for canines’ need for ﬁne cuisine and tummy rubs. And the verdict? Mango (L), Annie and Lily (R) consider it simply paw-fect.
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